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FedEx Cuts Profit Forecast, Citing High Fuel Costs

Package delivery company FedEx cut its earnings forecast for the current quarter on Friday, citing higher fuel prices and weaker demand for less-than-truckload shipments.

FedEx shares fell as much as 5 percent, touching their lowest level since early 2006.

FedEx
FedEx

Both FedEx and rival United Parcel Service Inc said recently they would hike delivery charges by 4.9 percent next year, but both also said they would cut fuel surcharges.

Investors watch the two companies as indicators of U.S. economic activity, the logic being that in a growing economy, more packages will be shipped.

"I guess in this environment it wouldn't be a surprise," said Allan Meyers, a principal at AMBS Investment Counsel in Grand Rapids, Michigan, commenting on the lower FedEx forecast.

"You've got rising oil prices, and shipments, I'm sure, are going to be slowing down," he said. "It's just a gradual, continued slowdown in the U.S. economy."

Meyers co-manages the AHA Diversified Equity Fund and holds FedEx shares.

FedEx said it now expects a profit of $1.45 to $1.55 per share for its fiscal second quarter ending Nov. 30, down from its previous forecast of $1.60 to $1.75.

Analysts, on average, had expected $1.70 per share, according to Reuters Estimates.

Fuel Costs Rise More Than 8%

"Since we provided earnings guidance for the second quarter in September, our fuel costs have increased more than 8 percent, or $85 million," Alan Graf, executive vice president and chief financial officer, said in a statement.

"Less-than-truckload trends om the FedEx Freight segment remain weak, despite economic signs that the decline in U.S. industrial production has hit bottom," Graf added.

For the fiscal year, the Memphis, Tennessee-based company said it expects a profit of $6.40 to $6.70 per share, down from a prior forecast of $6.70 to $7.10. Wall Street had been expecting $6.83.

FedEx shares were down $4.28 to $97.09 in morning trade on the New York Stock Exchange after falling as low as $96.10 earlier in the session.

UPS shares eased $1.75, or 2.4 percent, to $71.35, also on the NYSE.

So far this year, FedEx shares are down about 10 percent and UPS shares are down 4 percent. By comparison, the Dow Jones transportation index, which also includes railroads, airlines and trucking companies, is up 0.9 percent.

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