FedEx profit falls on weak airfreight business

[March 21, 2013]  DALLAS (AP) -- FedEx said Wednesday that third-quarter profit fell 31 percent as customers shifted to slower and less-expensive international air-shipping options, and it cut its forecast of full-year earnings.

The company says it will cut capacity to and from Asia starting next month and might retire some of its older airplanes.

FedEx shares fell $7.33, or 6.9 percent, to close at $99.13 Wednesday.

FedEx Corp. said its net income fell to $361 million, or $1.13 per share, in the three months ended Feb. 28. That's down from $521 million, or $1.65 per share, a year earlier.

Excluding costs of voluntary buyouts for some U.S. employees, the company says it would have earned $1.23 per share.

Revenue rose 4 percent to $11 billion.

Analysts were looking for $1.38 per share and revenue of $10.9 billion, according to FactSet.

The company's fiscal year ends in May. It expects adjusted earnings between $1.90 and $2.10 per share in its fourth quarter and $6 to $6.20 per share for the year. That is below analysts' forecasts of $2.12 and $6.35 per share, respectively.

Memphis-based FedEx is the world's second-biggest package-delivery company. It's seen as a gauge of the overall economy because so many consumers and a range of businesses use its shipping services.

Chairman and CEO Frederick W. Smith said the company's fiscal third quarter, which ended Feb. 28, was "very challenging" due to weakness in the global airfreight business and customers picking slower, less-expensive ways to ship packages.

Smith said the company will respond by cutting capacity to Asia and directing less profitable shipments into "lower-cost networks." He said the company was studying whether the moves will let it retire older, less-efficient planes.

Executives said that the problem with the international airfreight business wasn't a lack of volume, but rather a faster-than-expected shift among customers from fast, premium service to cheaper delivery options.

"Our planes coming out of Asia were full -- full of the wrong type of product," said David Bronczek, CEO of the company's Express business.

Taking their cue from the company, some analysts lowered their forecasts for future earnings. Jim Corridore of Standard & Poor's lowered his predictions for this year and next year but said the shares were still a value and would rise on good economic news.

Cowen Securities analyst Helane Becker said the airfreight business "continues to bounce along a bottom" but results at FedEx's Express unit shouldn't get any worse as the company takes steps to fix it.

FedEx plans to cut annual costs $1.7 billion by 2016 with buyouts that will reduce its workforce by at least 10 percent by May 2014. The company said Wednesday that it will spend $450 million to $550 million in cash on the buyouts during the fiscal year ending in May, with "some additional costs" in the following 12 months.

FedEx lowered its capital-spending plan for the current year to $3.6 billion from $3.9 billion.

[Associated Press; By DAVID KOENIG]

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