--FedEx says benefits of restructuring gaining momentum
--Reiterates profit forecast for full fiscal year
--Expects "modest" economic growth to continue
(Updates throughout with conference call comments, additional details and stock activity)
By Bob Sechler
FedEx Corp. (FDX) said Wednesday that the soft global economy dragged down results for its fiscal second quarter as airfreight customers continued to opt for low-priced shipping services, and it also said disruptions from Hurricane Sandy reduced profit.
"Persistent weakness in the global economy and increasing demand for lower-yielding" services hurt results in the company's big express division, FedEx Chief Executive Frederick Smith said on a post-earnings conference call.
Profit for the quarter ending Nov. 30 slumped 12%, compared with the year-ago period. On a per-share basis, FedEx earned $1.39, coming in below Wall Street's consensus expectation of $1.41, although the company said Hurricane Sandy crimped results by 11 cents per share "due to reduced shipment volumes and incremental operating costs."
FedEx, the world's largest international air shipping company by revenue, forecast per-share earnings for the current quarter of $1.25 to $1.45, mostly trailing forecasts of $1.45 from analysts surveyed by Thomson Reuters.
The company backed its previous adjusted earnings expectations for its full fiscal year, saying it expects "modest" economic growth to continue and financial benefits from its ongoing restructuring and profit-improvement program to kick in.
Shares were up about 2.7% in recent trading at $94.82.
"We have strong momentum building [in the restructuring program], and you'll see it" in the fourth quarter, Chief Financial Officer Alan Graf said.
The company added a caveat to the forecast, however, noting that it assumes "the U.S. does not go off the fiscal cliff and into a recession."
FedEx has struggled with the European economy flagging and Asia's softening, as well as more of its customers moving away from FedEx's premium-priced overnight delivery service for cheaper options.
In response, the company in October unveiled a restructuring plan aimed at creating $1.7 billion in profitability improvements by the end of its fiscal year 2016 through voluntary buyouts, updating and modernizing its air fleet, and reorganizing its express, ground and freight businesses.
But the challenge facing Memphis, Tenn.-based FedEx remained evident in its latest quarterly results.
Volume in its international export express division was up 6% overall, but much of the increase came from a 14% rise in international economy services. Yield in the segment--a broad measure of pricing and profitability--was off 4%, partly because of the trend.
Overall volume in the express division was up 9% in the quarter, although total U.S. domestic volume slipped 2%.
For the period ended Nov. 30, FedEx reported a profit of $438 million, down from year-earlier earnings of $497 million. The company in September predicted per-share earnings of $1.30 to $1.45, which were well-below Wall Street expectations at the time.
Revenue improved 4.9% to $11.11 billion, topping analysts' projections of $10.84 billion.
Operating margin narrowed to 6.5% from 7.4%.
Revenue from the express-shipping business--by far the company's largest top-line contributor--grew 4.2% to $6.86 billion. However, the segment's operating income was down 33%.
The company's ground-shipping segment posted an 11% increase in revenue to $2.59 billion. Operating profit was up 3.5% as average daily volume grew 8%, driven by growth both FedEx Home Delivery and business-to-business services.
For calendar year 2013, FedEx on Wednesday stood by its September forecast for growth in U.S. gross domestic product of 1.9%, although it trimmed its forecast for global growth to 2.5% from 2.7%. FedEx lowered both forecasts three months ago, from previous expectations of 2.4% U.S. gross domestic product growth next year and 3% global growth.
--Ben Fox Rubin contributed to this article.
Write to Bob Sechler at firstname.lastname@example.org
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