FedEx report first loss in 11 years

FedEx Corp. posted its first quarterly loss in 11 years and projected earnings that fall short of analysts' estimates as fuel costs rise and a slowing economy curbs demand. The shares dropped 2.1 percent.
The second-largest U.S. package-shipping company had a fourth-quarter loss of USD 241 million on a writedown for its Kinko's unit, and predicted a “very difficult'' environment in the coming year.
The report from FedEx, considered a proxy for the U.S. economy, suggests fuel costs and declining demand will continue to erode prospects in industries ranging from shipping to airlines. Economists have cut their U.S. growth forecasts for later this year and next as job losses, food and fuel prices and tougher lending rules hurt consumers.
“The economy is struggling and FedEx is a premium service provider at the top of the food chain,'' Art Hatfield, an analyst at Morgan Keegan & Co., said today in an interview on Bloomberg Television. “When times get tough, their customers are looking to save, and that means going to other modes of transportation'' that are cheaper.
The net loss was 78 cents a share, compared with a year- earlier profit of USD 610 million, or USD 1.96, the company said today in a statement. Revenue rose 7.8 percent to USD 9.87 billion.
Excluding the USD 891 million charge for the Kinko's unit, which is being renamed FedEx Office, the company's profit was USD 1.45 a share, which missed the average USD 1.47 estimate of 11 analysts surveyed by Bloomberg. The writedown for FedEx Kinko's, a chain of office-supply and copy centers, was for the value of the trade name and goodwill.
`Uncertain Outlook'
FedEx fell USD 1.73 to USD 82.60 at 4:02 p.m. in the New York Stock Exchange composite trading, after dropping to USD 80.38 earlier.
FedEx said fiscal first-quarter earnings would be 80 cents to USD 1 a share, lower than the USD 1.34 average estimate of nine analysts surveyed by Bloomberg. Profit a year earlier was USD 1.58 a share. The Memphis, Tennessee-based company said earnings are “difficult to predict'' because of volatile fuel prices and an “uncertain economic outlook.''
For the full-year, FedEx said profit will be USD 4.75 to USD 5.25 a share, compared with an average estimate of USD 6.01 by 12 analysts in a Bloomberg survey.
Economic Bellwether
“FedEx is a bellwether for economic indicators, and what it's telling us is that the economy is still weak,'' said Christopher Low, chief economist at FTN Financial in New York. “Obviously costs are way up, but revenues were also weaker than I expected.''

FedEx and UPS typically have a two-month lag in recovering fuel expenses through surcharges. Crude oil, from which gasoline and jet fuel are derived, averaged USD 115 a barrel in the three months ended May 31, up from USD 63 in the same period a year earlier.
FedEx's fuel bill for the fourth quarter surged 54 percent, to USD 1.39 billion. Jet-fuel costs jumped 80 percent from a year earlier, Graf said on a conference call with investors and analysts.
Cheaper Options
The surcharges that FedEx has been able to add so far have hurt demand for express shipments, as some customers downgrade to cheaper options such as two-day shipping or freight. FedEx's fuel surcharge on express packages is 28 percent, up from 18.5 percent in March, according to its Web site. The surcharge will jump to 32.5 percent in early July.
FedEx's U.S. package volume dropped 3.4 percent for the fourth quarter, with a 6.5 percent decline in overnight envelope shipments, one of its most profitable offerings. International volumes rose more than 5 percent for the quarter.
FedEx's results underscore concerns among economists that higher energy and raw-materials expenses will squeeze profits in more industries as consumers resist price increases. Prices paid to U.S. producers rose more than economists forecast in May as fuel and food costs climbed, a report yesterday from the Labor Department showed.
FedEx controls about 31 percent of the U.S. package market, behind only UPS's 51 percent share, according to SJ Consulting Group Inc.