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FedEx Profit Rises, But Outlook Cut

Reuters
Thursday, 20 Sep 2007 | 4:45 PM ET
FedEx
FedEx

FedEx Thursday reported higher quarterly profit despite a slowing U.S. economy, but lowered its full-year earnings outlook, sending its shares down nearly 2%.

The package delivery company said net income rose to $494 million, or $1.58 a share, in the first quarter ended on Aug. 31, from $475 million, or $1.53 a share, a year earlier.

Wall Street analysts on average had expected earnings of $1.54 per share, according to Reuters Estimates.

"FedEx did a little better than we expected, but they have hit a bit of a soft spot and guided down," said Al Meyers, a portfolio manager and principal at Grand Rapids, Michigan-based AMBS Investment Council, a long-term holder of FedEx stock.

"They are a great operator, but how well they do depends on the how the U.S. economy performs," said Meyers, whose firm manages $650 million in assets and co-manages the $100 million AHA Diversified Equity Fund.

FedEx Delivers Results
The shipping giant's net income rose 4%, with earnings beating estimates by four cents a share. Frederick Smith, CEO of FedEx, discusses his company's earnings with CNBC's Dylan Ratigan.

FedEx's quarterly sales rose 8% to $9.2 billion, above the $9.08 billion that analysts were expecting.

"Outside of the United States, the economy is generally solid," Chief Executive Fred Smith said in a statement.

The Memphis, Tennessee-based company said it expected full-year earnings per share of $6.70 to $7.10, down from its outlook of $7 to $7.40 given in June. Analysts had forecast $7.19.

"As a result of this weaker than anticipated economic environment, particularly its impact on the less-than-truckload freight market, we have reduced our earnings forecast by 4% for the full year," Chief Financial Officer Alan Graf said in a statement.

Less-than-truckload companies consolidate smaller loads into a single truck. The U.S. trucking market has seen weak freight volumes over the past year and faces a tough pricing environment as companies compete for business.

Like its main rival, Atlanta-based United Parcel Service , FedEx is seen as a bellwether of U.S. economic activity.

"Going forward we'll have to see whether the recent interest rate cut [of 50 basis points by the U.S. Federal Reserve] will provide some economic impetus," AMBS Investment Council's Meyers said.

FedEx said it expected second-quarter earnings per share of $1.60 to $1.75. Analysts had forecast $1.95.

For the first quarter, the company said revenue at its core FedEx Express delivery unit rose 4 percent to $5.89 billion. Revenue rose 14% to $1.62 billion at the FedEx Ground delivery unit and jumped 22% to $1.23 billion at FedEx Freight.

The company said regional less-than-truckload shipments at FedEx Freight declined slightly due to slowing U.S. economic growth.

FedEx also announced that it was placing its struggling FedEx Kinko's unit in a new division called FedEx Services with its supply chain services operations. FedEx Services revenue declined slightly to $525 million from $527 million.

In premarket trading, FedEx shares were down 1.7% at $105.72.

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