FedEx warns oil prices to hit profits
FedEx, the world’s second-largest package delivery company, increased its third-quarter net earnings by a better than expected 53 per cent but warned that high oil prices would erode profits in the fourth quarter.
Alan Graf, chief financial officer, said this year’s renewed increase in fuel prices was having a “significant impact” on margins.
US light crude yesterday rose above USD57 a barrel for the first time, amid strong global demand and tight supply.
However, Fred Smith, chairman and chief executive of FedEx, said he remained confident about prospects for the company and the world economy. “We have solid momentum in the business and customer demand is strong,” he said. “Economic conditions remain favourable, and we are optimistic about future growth.”
FedEx has been winning share of US ground deliveries from UPS, the market leader, while also enjoying rapid growth in international express traffic as global trade increases, especially between Asia and North America.
Mr Smith said FedEx had enjoyed an “extraordinary” peak shipping season, in contrast to the weak Christmas period encountered by UPS.
All three of FedEx’s main businesses – air express, ground and freight – registered double-digit percentage increases in revenues and operating profits, underlining its status as the best-performing of the big package delivery companies.
However, FedEx said pricing in the domestic express and ground markets was becoming more competitive, suggesting that UPS was fighting back, while DHL, owned by Germany’s Deutsche Post, continues to expand in the US.
Net profits were USD317m, or USD1.03 a share, compared with USD207m, or 68 cents, last year. Analysts had expected 98 cents.
However, Mr Graf said fourth-quarter profits would be at the lower end of analysts’ expectations, forecasting earnings per share of USD1.40 – USD1.50, compared with analysts’ consensus of USD1.49.
Jon Langenfeld, analyst at Baird Research, said strong growth in international express and domestic ground sales was expected but the 6 per cent volume increase in domestic express – FedEx’s most mature business – was a “positive surprise”.
Mr Graf said FedEx would invest USD2.3bn in the 2005 fiscal year. The company has been ordering more long-range aircraft, including up to 20 Airbus A380 superjumbos, to cope with surging global trade between Asia, North America and Europe. It has also been expanding its facilities in China, as it vies with UPS and DHL for leadership in the world’s most populous country.
