FedEx suffers slump in services
Profits at FedEx fell 5 per cent in the fiscal third quarter as demand for express package-delivery services slumped amid a broad slowdown in the US economy.
The world’s largest express package shipper said domestic volume, which declined 1 per cent in the quarter, matched “patterns seen in the 1990-91 recession” and it warned that economic uncertainty made it difficult to provide guidance on future financial results.
“Market conditions have deteriorated more than we anticipated as reflected by numerous news accounts of earnings warnings and lay-offs, particularly in the auto and high-tech sectors,” FedEx said.
The company, however, stressed it would not be cutting jobs and pointed out that recent developments, such as its alliance with the US Postal Service, would help offset the downturn in business.
In spite of the downbeat report, FedEx shares climbed more than 6 per cent in early afternoon trading on Wednesday, because the company had met Wall Street earnings estimates of 37 cents per share, against 39 cents last time. The shares rose $2.74 to $42.99.
Net income was $109m, against $113m previously.
Rising fuel costs constricted earnings, costing $24m in the third quarter.
FedEx said it would be unveiling in the next few weeks a programme to offset such costs, adding a fuel surcharge that would directly match changes in crude oil prices.
Compounding FedEx’s troubles was slowing growth in the international shipping business, which in the past few quarters had helped counter flagging volume in the US.
Package shipments in Asia, for instance, grew only 7 per cent in the third quarter, much lower than the 26 per cent growth a year earlier.
Volume in its ground operations, which FedEx expanded last year to help better compete with its rival, United Parcel Service, had been similarly disappointing.
“We had rigged ground [volume] for a higher growth rate of 15 to 20 per cent by now, but it’s only growing 2 per cent,” said Alan Graf, chief financial officer. “We think it’ll pick up by the fourth quarter.”
Revenues still rose, up 7 per cent to $4.8bn.
