FedEx Guides Down on Weak U.S. Growth, Fuel Costs

U.S. bellwether stock FedEx (FDX) reported FQ2 EPS of $1.54 ($479M) Thursday, beating consensus estimates of $1.50. Quarterly revenue of $9.45 billion was higher than consensus estimates of $9.32 billion. However, profits were down 6% from a year ago when the company earned $511 million, or $1.64 a share. Looking ahead, FedEx expects FQ3 EPS of $1.15-$1.30, vs. consensus estimates of $1.37, and full-year EPS of $6.40-$6.70, vs. consensus of $6.47.The firm lowered its capital spending forecast by $0.4B to $3.1B.

FedEx said high fuel prices and weak U.S. economic growth impacted profitability. "As we noted last month, higher fuel prices and continued weak growth in the U.S. economy have hindered profitability," CFO Alan B. Graf said. "While we have indexed fuel surcharges in place, they cannot keep pace in the short-term with rapidly rising fuel prices. We are implementing cost-containment actions to manage near-term expenditures and have reduced our capital spending forecast. We will continue, however, to invest in strategic projects related to our long-term growth plans." In a conference call with analysts, CFO Alan Graf said that weak domestic earnings will be "mitigated by international growth," (full earnings call transcript later today). Executives highlighted strong China growth on the call.

"The real story here is the state of U.S. domestic freight and when things are going to turn around," said AMBS principal Allan Meyers. "The outlook FedEx gave for the current quarter and the fact they have cut their capital expenditures demonstrate that they are not looking for any near-term improvement... This will last at least for the next quarter and probably beyond," he said.

Shares are -1% as of 10 a.m.

Sources: Press release, Reuters
Additional Reading: FedEx Slows, Starbucks Cools, Stagflation is Coming

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