FedEx to cut costs

REUTERS

A FedEx delivery truck is seen in New York City.

FedEx Corp is stepping up cost-cutting measures to beef up profit as sluggish global economic growth curbs shipping volumes and increases customer demand for lower-priced delivery options.

Shares of the world's No. 2 package delivery company rose 2.5 percent early Tuesday after it reported adjusted quarterly profit above analysts' estimates and said it was looking to cut costs further in the absence of significant economic recovery in fiscal 2013.

Moderate global economic growth that keeps shippers conservative will continue into the next year, FedEx told analysts on a conference call.

The massive volume of goods moved by FedEx makes its shipping trends a closely watched indicator of consumer demand and economic growth.

“We believe US domestic and global economic conditions will be impacted by the European debt crisis, slowing growth in Asia,” Chief Financial Officer Alan Graf said on the call.

“These weaker global economic conditions have driven a shift by our customers from premium services to our deferred products. We expect that trend to continue in 2013.”

FedEx said it faces cost increases in fiscal 2013, including higher pension expenses and depreciation costs.

The company, whose fiscal 2013 began earlier this month, told analysts it will provide more detail on its new cost-cutting initiatives in October at its investor meeting.

FedEx said it sees profit per share of $1.45 to $1.60 in its first quarter and $6.90 to $7.40 in fiscal 2013.

The quarterly forecast was below the $1.70 average expected by analysts polled by Thomson Reuters I/B/E/S.

For the full year, the average estimate is $7.39 per share.

The outlook “does not include the impacts of the significant cost reductions programs currently under review that should be announced in the fall,” the company said in a statement.

The guidance was “slightly disappointing,” but is likely to be revised higher at the company's October investor meeting, after cost-cutting measures such as retiring the “gas-guzzling” aircraft take hold, said Kevin Sterling , BB&T Capital Markets analyst in Richmond, Virginia.

FedEx reported net profit for its fiscal fourth quarter ended May 31 of $550 million, or $1.73 per share, down from $558 million, or $1.75 per share, a year earlier.

But adjusted profit before items was $1.99 per share, up from $1.75 a year before and above the $1.92 average forecast, according to Thomson Reuters I/B/E/S.

Revenue rose 4 percent to $11.0 billion, near the $11.1 billion Wall Street estimate.

FedEx in March cut its outlook based on expectations for below-trend global growth and a mild Eurozone recession.

In its largest segment, FedEx Express, US domestic revenue per package rose 6 percent in the fourth quarter due to higher rates per pound, fuel surcharges and growth of premium services, even as volume declined 5 percent.

International priority revenue per package rose 3 percent while average daily volume declined 3 percent, driven by year-over-year declines from Asia.

Fred Smith, FedEx's chief executive officer, said “because of policy decisions around the world, international growth has been lower than we anticipated” though Europe has performed well during the turmoil there.

Memphis, Tennessee-based FedEx is undergoing a fleet upgrade to improve fuel efficiency, announcing in December that it was buying new aircraft from Boeing Co to replace some aging planes and delaying delivery of others to cut expenses.

On June 4, FedEx said it was accelerating its aircraft retirement schedule, and taking a related net charge of $84 million, or 26 cents per share, in the fourth quarter.

The company's shares were up 2.5 percent at $90.71 on Tuesday morning on the New York Stock Exchange. - Reuters