FedEx earnings plummet by 55% in fourth quarter
FedEx earnings dropped 55 per cent in the fiscal fourth quarter as demand for express shipments from technology and durable goods companies – its most important customers – shrank considerably amid a weakening US economy.
The Memphis-based carrier also warned it would do no better in the first quarter and predicted earnings at the lower end of analysts’ estimates, currently around 25 cents per share.
The poor results and profits warning reflect the scale-back of shipping requirements by financially strapped companies, especially in the technology sectors in the US and Asia.
“If it wasn’t for what’s happening in [the technology sector] . . . we wouldn’t be looking at a 6 per cent decline” in US express shipping volume, said Alan Graf, chief financial officer. “A year ago, we thought our express domestic business would be up 10 per cent.”
International priority shipments grew only 2 per cent in the fourth quarter.
FedEx has cut costs and is deferring the delivery of aircraft until fiscal year 2003.
“We’re going to be absolutely vigilant with our capital expenses . . . to make sure it matches the volume we have,” said Mr Graf. “The most important point is that we’re going to be cashflow positive.”
Capital spending in the 2002 fiscal year is expected to be reduced to between $1.8bn and $1.9bn.
Earnings in the three months to May 31 fell to $113m, or 38 cents per share, compared with $245m, or 85 cents per share, a year before. The figure includes charges from scaling back the conversion of MD-10 aircraft to freight carriers, which cost about $93m. Other charges include writing off several projects.
Excluding the charges, FedEx earned 64 cents per share, exceeding Wall Street estimates of 52 cents per share. Revenues were up 6 per cent at $5.12bn against $4.85bn.
FedEx shares closed up $1.91 at $38.71 in New York. Analysts said the rise reflected investors’ belief that conditions would improve by the second quarter.
FedEx has cut about 4,500 jobs and implemented a hiring freeze. All profit-based bonuses have been halted and the profit-sharing scheme suspended. The company has also eliminated its Sunday delivery option for priority overnight packages.
FedEx said it would continue to diversify. It has a new contract with the US Postal Service in which it is installing drop-boxes at 10,000 local post offices and handling air delivery for the postal system. The seven-year contract is expected to bring in about $1bn in revenues a year. FedEx is also continuing to expand its home delivery service.
The company said its concentration on servicing small-to medium-sized businesses – the core customers of rival United Parcel Service – was proving successful after the reorganisation of its sales force. “The biggest challenge is not the ability to close new business. The problem is the weakness in the existent customer base,” said Mr Graf.
Financial Times
