FedEx warns of earnings drop

FedEx warned yesterday that first-quarter earnings would be affected by high fuel prices and intense competition, after increasing net profits by 9 per cent in the fourth quarter.

The cautious guidance appeared to signal a slowdown in the package delivery company’s momentum, after several consecutive quarters as the industry’s star performer.

Michael Glenn, vice-president of market development, conceded that the industry was becoming more competitive but insisted pricing remained “rational”.

United Parcel Service, which had been losing market share to FedEx, has fought back strongly from a weak 2004 and German-owned DHL is expanding in North America.

James Valentine, analyst at Morgan Stanley, said FedEx’s comments brought confirmation that FedEx and UPS were “using price more aggressively”. But he dismissed fears that the market was descending into a destructive price war.

All of FedEx’s business units grew solidly in the fourth quarter, generating net profits of Dollars 448m, or Dollars 1.46 a share, up from Dollars 412m, or Dollars 1.36, in the same period last year. But the results missed analysts’ consensus expectation of Dollars 1.48.

Shares in FedEx were down 8.34 per cent at Dollars 80.77 by the close, in response to the sluggish results and uncertain outlook.

Fred Smith, chairman and chief executive, said he was optimistic about this year and forecast a double-digit earnings increase driven by steady economic growth in the US and international markets.

But the company’s forecast of first-quarter earnings per share in the range of Dollars 1.10-Dollars 1.25 and Dollars 5.20-Dollars 5.45 for the full year were at the low end of expectations.

Mr Smith said the long-term outlook for the company remained bright as globalisation increased demand for international supply chain services.

Total revenues increased 10 per cent to Dollars 7.72bn compared with Dollars 7.04bn in the same period last year.