FedEx 3Q earnings dip 2 pct. on slowdown

FedEx 3Q earnings dip 2 pct. on slowdown

	Published : Thu, 22 Mar 2007 02:46 By : Agencies Print this Story

MEMPHIS, Tenn. (AP) - FedEx Corp. reported a 2 percent drop in third-quarter earnings Wednesday, blaming the decline largely on an economic slowdown that tested the company's ability to quickly adjust costs. The shipping company said it also will have to struggle to keep up with a long-range goal of 10 percent to 15 percent growth a year in per share earnings.

But FedEx executives expressed confidence the economy would improve and said the company is well positioned to take advantage of it.

For the quarter ended Feb. 28, earnings slipped to $420 million, or $1.35 per share, from $428 million, or $1.38 per share, a year earlier.

FedEx said expenses for dealing with bad winter weather cut into profit by 6 cents per share, but that was offset by a gain of 8 cents a share related to a lower tax rate.

Alan Graf, the company's chief financial officer, said revenue growth was less than expected due to the slowing economy, primarily at the FedEx Express and FedEx Freight divisions.

'We think we are in a little bit of a soft patch at the moment,' Graf said. 'As we see revenue slowing, we are simply unable to adjust our cost structure quickly enough during a quarter to make up for the lost revenue, and that had a negative impact on us.'

But Dan Ortwerth, an analyst with Edward Jones & Co., said FedEx's focus on a flexible cost structure and global expansion helped.

'You are going to get hit, but they could have gotten hit a lot worse,' Ortwerth said. 'I think that shows they really have built a smart structure.'

Fuel costs also cut into earnings, FedEx said. Customers pay a surcharge to offset rising fuel costs, but there can be a time lag in adjusting those charges to keep up with fuel prices.

'The fuel surcharge declined and the price per gallon went up, so it was a significant negative on a year-over-year basis,' Graf said. 'Hopefully, that will even out.'

Company President and Chief Executive Frederick W. Smith said the U.S. economy grew slower than anticipated in the third quarter but FedEx economists expect it to improve.

'FedEx is in excellent position to take full advantage of global economic-growth trends and deliver overall outstanding financial results in the long run,' Smith said.

Overall, FedEx revenue grew 7 percent to $8.59 billion from $8 billion a year earlier.

On average, analysts surveyed by Thomson Financial expected the company to earn $1.33 per share on slightly higher sales of $8.7 billion. The estimates typically exclude one-time items.

Graf warned that a continued sluggish economy could affect earnings per share.

'We are going to have a very good year, but it may not be to the 10 to 15 percent (earnings per share) growth rate that we have as our long-term objective,' Graf said.

In a report on the third-quarter earnings, JPMorgan predicted FedEx would meet those long term goals in 2008, saying the company was taking 'a conservative view on the economy.'

Art Hatfield, an analyst at Morgan, Keegan & Co., said FedEx's assessment of the overall economy came as no surprise.

'They are just seeing things as we see them, too,' Hatfield said. 'They said they think things have slowed, and they do expect them to get better sometime this summer. I think they are seeing a soft-landing scenario.'

For the first nine months of the fiscal year, FedEx earned $1.41 billion, or $4.52 a share, versus $1.24 billion, or $4.01 a share, a year ago. Revenue rose to $26.06 billion from $23.80 billion a year earlier.

FedEx forecast earnings of $1.93 to $2.08 per share for the fourth quarter. And the company expects fiscal 2007 profit to range from $6.45 to $6.60 per share, or $6.70 to $6.85 per share excluding one-time charges.

On average, analysts are predicting fourth-quarter profit of $2.04 per share and earnings of $6.79 for the fiscal year ending in May.

Shares of FedEx fell $1.30 to close at $110.99 in trading on the New York Stock Exchange. Its shares have traded between $97.79 and $121.42 over the past year.