FedEx beats expectations as first-half profits jump
FedEx told investors that stable fuel prices and a modest recovery in the world’s economy had helped lift the package delivery company’s earnings. FedEx said it earned 58 cents a share during the fiscal first quarter, well above the 30-45 cent range it predicted in June, and forecast a second-quarter profit of 65-95 cents a share.
“First-quarter financial performance exceeded our guidance thanks to better-than-expected international priority volume, strict cost management and solid execution of our strategy,” Alan Graf, FedEx’s chief financial officer, said in a statement.
The improved outlook, which exceeded Wall Street’s consensus estimates for each quarter, also helped FedEx’s shares to their highest level in almost a year. The stock jumped 6 per cent to $77.01 by midday in New York, after increasing as much as 7.8 per cent.
Investors were hoping this summer would mark not only the start of a new fiscal year for the package-delivery company, but also the end of an economic downturn that has sapped worldwide demand for shipments.
Three months ago, FedEx’s executives said that while the first six months of its fiscal 2010 would remain “extremely difficult”, they believed the worst of the slowdown was behind them. In a September 1 note to clients, JPMorgan Chase analyst Thomas Wadewitz hinted that demand for international shipments had improved enough to prompt FedEx to revise its forecasts.
The Memphis-based company reports its full quarterly results on Thursday.
FedEx predicted in June that first-quarter earnings per share would range between 30 and 45 cents, compared with $1.23 a year ago and well below the 70-cent estimate analysts had averaged at the time.
By September, the consensus had dropped to 44 cents. FedEx has withheld any profits outlook for the full fiscal year 2010.
But in a July regulatory filing, the company said it would see a “slight increase” in earnings before income before interest and tax at both its express- and ground-delivery businesses.
“We think the outlook implies a pretty strong back-half recovery for its fiscal year,” Christopher Ceraso, a Credit Suisse analyst, wrote in a July note to clients.
In the statement, FedEx cautioned that it remained “difficult to predict the timing and pace of any economic recovery”.
FedEx also said the US Internal Revenue Service planned to assess $14m in taxes and penalties, plus interest, on the company to cover 2002 federal employment and withholding taxes for independent contractors working for the FedEx Home Delivery division. FedEx said it would contest the findings.
