FedEx quarterly profit up 9 percent, but misses expectations
FedEx reported a 9 percent increase in fourth-quarter earnings Thursday, but startup cost for a new westbound around-the-world flight played into keeping results below Wall Street expectations.
FedEx reported earnings of $448 million, or $1.46 per share, up from $412 million, or $1.36 per share, for the same quarter last year. Revenues were $7.72 billion, up from $7.04 billion.
On average, analysts surveyed by Thomson Financial were looking for earnings of $1.48 per share on sales of $7.82 billion.
Shares fell $5.06, or 5.7 percent, to $83.07 in morning trading on the New York Stock Exchange.
Improvements in its international priority business have played a major role in earnings increases for the package delivery company for several years, and the company said it expects to add more flights abroad for its cargo airline, FedEx Express.
“Because these routes take anywhere from 24 to 36 months to become profitable, we think now is the time to start them,” said chief financial officer Alan Graf. “Having said that, once they reach profitability, these provide high, double-digit returns for the foreseeable future and will be very lucrative.”
For the quarter, revenue from international priority shipments increased 14 percent.
Company officials noted in a conference call with market analysts that competition for market share is high.
“We certainly continue to see aggressive competitive pricing targeting specific accounts. That’s not anything particularly new, although we do see aggressiveness in that sector,” said Michael Glenn, vice president of market development.
FedEx battles rivals Atlanta-based UPS and DHL, a unit of German postal service Deutsche Post AG, for market share.
The company said average daily package volumes for FedEx Express and FedEx Ground grew by 6 percent. Revenues for FedEx Freight grew 11 percent to $843 million, while revenues for FedEx Kinko’s, the company’s newest division, increased 6 percent to $552 million.
Looking ahead, FedEx said it expects earnings to be $1.10 to $1.25 per share in the first quarter of fiscal 2006. Analysts, on average, are predicting $1.26 per share.
FedEx said its earnings guidance reflects increases in jet fuel prices which are expected to remain high during the next quarter.
The company covers increased fuel costs with surcharges, but there can be a lag in putting them into effect. Higher fuel costs, particularly for jet fuel, also can lead customers to adjust their shipping methods, the company said.
FedEx expects earnings for 2006 of $5.20 to $5.45 per share _ compared with the average analyst estimate of $5.48 per share.
