FedEx Posts Loss, Gives Weak 2009 Forecast
Package delivery company FedEx Wednesday forecast a weak fiscal 2009 after posting a quarterly loss it blamed on rising fuel prices, an ailing U.S. economy and a previously announced write-down.
Considered a reliable gauge of U.S. business, FedEx shares fell 3.6 percent in early New York Stock Exchange trading -- their lowest level since January.
"For me, the shocking part is the guidance," said Al Meyers, portfolio manager for the AHA Diversified Equity Fund, which owns FedEx shares.
"The management at FedEx are straight-shooters and give conservative guidance. "This is all based on energy prices and it's simply shocking," he added.
The company blamed its weak fiscal 2009 forecast on the impact of high fuel prices on demand for its services.
Chief Executive Fred Smith said the company will work to reduce expenses across all of its segments in the current fiscal year, for example, by reducing the rate of growth of its retail network.
FedEx is looking to quickly move fuel-efficient 757 jets into service, with the first such jet entering service in September.
"We remain positive about prospects for long-term global economic growth and believe FedEx will be well-positioned for profitable growth when economic conditions improve," Smith told analysts on a conference call.
He added that that the company's 2008 and 2009 fiscal years are "anomalies," given problems in the financial, housing and automotive sectors of the U.S. economy and the rapid run-up in fuel prices.
Lower demand for oil will likely mitigate prices, he added.
Memphis-based FedEx reported a fiscal 2008 fourth-quarter loss of $241 million, or 78 cents a share, compared with a profit of $610 million, or $1.96 a share, a year earlier.
Excluding a one-time charge of $891 million, FedEx reported earnings of $1.45 a share.
Analysts' average forecast was $1.47, according to Reuters Estimates.
The charge was related to a name change for FedEx Kinko's.
Earlier this month FedEx said it was changing the name of FedEx Kinko's -- which has struggled as its core copy-print business has underperformed -- to FedEx Office.
FedEx bought Kinko's in 2004.
Revenue in the fourth quarter rose 8 percent to $9.87 billion versus expectations of $9.51 billion.
FedEx and its main rival, Atlanta-based United Parcel Service , are both seen as bellwethers of U.S. economic activity.
UPS shares were down 2.3 percent in early trading.
FedEx said it expects fiscal first-quarter earnings of 80 cents to $1.00 a share. Analysts expect $1.35.
The company said it expects full-year fiscal 2009 earnings of $4.75 to $5.25 per share. Analysts' average forecast is $5.98.
"This guidance incorporates the current high fuel prices and the related impact on fuel surcharges, which are reducing demand for FedEx services and impacting yield across the company's transportation segments," FedEx said.
Peter Kenny, managing director at Knight Equity Markets, said FedEx was in the "unique space of not only having higher fuel costs for trucking, but they're also in the airline space, so they're facing an enormous challenge to deliver on revenue growth and cost containment."
Standard & Poor's cut its rating on FedEx shares to "buy" from "strong buy," and cut its 2009 earnings estimate to $5.34 from $6.38 per share.
It also reduced its price target by $11, to $96 per share.
"We expect logistics stocks to start to move up in advance of improvement in the U.S. economy, but we think the risk of a longer downturn has risen," analyst Jim Corridore wrote in a research note.
FedEx shares fell $3.10 to $81.23, while UPS was down $1.92 at $65.42.