Dec. 17 (Bloomberg) -- FedEx reports second-quarter results that fell short of expectations, but reaffirmed their 2015 profit forecast. Bloomberg’s Scarlet Fu reports on “Bloomberg Surveillance.”
FedEx Corp. (FDX) slumped after posting a quarterly profit that trailed estimates from analysts who had predicted bigger savings from the global collapse in fuel prices.
Profit of $2.14 a share missed the $2.25 average in a survey by Bloomberg, a projection that rose in recent weeks on expectations of lower spending on diesel and jet kerosene. FedEx slid 3.2 percent to $168.68 at 9:39 a.m. in New York, paring a 3.4 percent drop that was the most intraday since January.
“Guys were aggressively putting in benefits from fuel, and the airfreight markets have been good,” said Art Hatfield, a Raymond James & Associates analyst in Memphis, Tennessee, who estimated per-share profit at $2.08. “They were just pushing and pushing and just got a little too aggressive.”
While tumbling oil prices promise to boost profits for many transportation companies, Memphis-based FedEx found itself pinched as its fuel bill declined more slowly than did crude. Aircraft maintenance expense also rose, according to FedEx, the operator of the world’s largest cargo airline.
Revenue rose 4.7 percent to $11.9 billion, FedEx said today, while net income for the second fiscal quarter ended Nov. 30 climbed 23 percent to $616 million. On an earnings-per-share basis, the gain was 36 percent, from $1.57 a year earlier.
A cargo plane is refueled on the tarmac at the FedEx Corp. distribution hub at Los Angeles International Airport in Los Angeles, California. Close
A cargo plane is refueled on the tarmac at the FedEx Corp. distribution hub at Los... Read More
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A cargo plane is refueled on the tarmac at the FedEx Corp. distribution hub at Los Angeles International Airport in Los Angeles, California.
“Expectations have become very high for this company over the past several quarters, and it finally caught up with them,” said Logan Purk, an Edward Jones & Co. analyst in St. Louis. “When a company has 36 percent earnings growth but that’s not good enough, that tells you how high expectations have become.”
Forecast Reaffirmed
FedEx also reaffirmed its earlier full-year earnings forecast of $8.50 to $9 a share. That compares with the $9.10 average of 26 analysts surveyed by Bloomberg.
Quarterly results were damped by engine maintenance spending on older cargo planes, FedEx said, as well as a decline in surcharges as fuel prices dropped. That also crimped FedEx’s yield, or the amount of revenue for each package, according to Hatfield, who rates FedEx as a strong buy.
“They grew earnings to $2.14 from $1.57 last year,” said Kevin Sterling, a BB&T Capital Markets analyst in Richmond, Virginia, who like Purk rates FedEx as hold. “That’s phenomenal growth. Pretty much any company in the S&P 500 would take that any day of the week. The underlying trends are still pretty strong.”
FedEx said it “benefited slightly” from the net impact of falling fuel prices. Brent crude, the global oil benchmark, plunged 46 percent this year through yesterday.
“The year-over-year reduction in surcharge revenue largely offset the benefit of lower prices,” Chief Financial Officer Alan Graf told analysts and investors on a conference call.
Surcharge Changes
Changes in FedEx’s fuel surcharge lag behind price movements by six to eight weeks for its Express and Ground segments, so the November surcharge was based on September prices, Graf said. The surcharges also don’t adjust as long as prices remain within a certain band and the company’s fuel purchase contracts aren’t based on daily price swings.
As a result, FedEx’s fuel costs didn’t fall as much as spot prices during the quarter, Graf said.
Today’s announcement came in the final days of the pre-Christmas e-commerce rush. FedEx hired 50,000 holiday workers, 25 percent more than in 2013, introduced new technology to boost efficiency and worked more closely with customers to estimate and monitor expected package volumes after a last-minute surge in shipments from online retailers caused delays to some deliveries last year.
FedEx expects three surges in holiday shipping, with more than 20 million packages on each of the first three Mondays in December.
To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net
To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net Molly Schuetz
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