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2014 Media Kit

REFILE-UPDATE 5-FedEx 2nd-qtr profit misses estimate; offers holiday optimism

By: | at 02:10 PM | Air Cargo  

By Nivedita Bhattacharjee

Dec 18 (Reuters) - FedEx Corp posted a 14 percentrise in quarterly profit on Wednesday on stronger margins andcost cuts, but results missed Wall Street estimates, whichovershadowed the company’s confident forecast for the holidayshopping season.

Wall Street analysts expressed disappointment at the slightdip in revenue at the express delivery business, FedEx’s biggestunit. They also noted softening volume growth for grounddeliveries.

Average daily volume at FedEx Ground rose 8 percent in thefiscal second quarter, slowing from the 11 and 10 percent growthin the previous two quarters, and below the 10 percent expectedby Logan Purk, an analyst at Edward Jones.

A 3 percent rise in overall revenue to $11.4 billion andsuccess in ongoing cost cutting efforts helped offset some ofthe volume weakness.

FedEx earned $500 million, or $1.57 a share, in the secondquarter ended Nov. 30, versus $438 million, or $1.39, in thesame quarter last year.

Analysts, on average, expected earnings of $1.64 as perThomson Reuters I/B/E/S.

Shares of the global shipping company slid as much as 3percent in premarket action. By mid-morning, the stock dipped0.1 percent at $138.93 on the New York Stock Exchange.

SEES STRONG HOLIDAY SEASON

FedEx predicted a strong holiday season and forecastfull-year earnings per share growth between 8 percent and 14percent above last year. Previously, its outlook was for growthbetween 7 percent and 13 percent.

While part of that boot to earnings per share will beattributed to the company’s repurchase of 10 million shares yearto date, FedEx has also said it expects shipping volumes to pickup during the holiday season.

In October, the company forecast more than 85 millionshipments during Cyber Monday week, up 13 percent from lastyear.

On a conference call with analysts, Chief Financial OfficerAlan Graf said seasonal increases in volume, revenue, andoperating income related to cyber Monday week will come in thethird quarter this year, not the second quarter as it was lastyear.

“More than a quarter of the volume that we see in peak comesin Cyber Week. And if you think about it, that volume andrevenue and profit was all shifted to the third quarter,” addedFedEx Ground chief executive Henry Maier.

Cyber Monday comes right after the U.S. Thanksgiving holidayas employees return to work and many make purchases on theiroffice computers. The holiday shopping season is the biggestselling period for retailers. Retailers use services like FedExand United Parcel Service Inc when customers buy online.

COST CUTS HELP

Last year, FedEx outlined a multi-year plan to reign incosts, which the company said would boost profits by $1.7billion.

The company, seen as a bellwether because its resultsreflect economic activity, has been revamping routes andtrimming capacity to Asia and other international markets to cutcosts and stem a decline in its express division. The unit hassuffered as clients choose slower, cheaper delivery options.

For the second quarter, revenue at its express deliverysegment dipped to $6.84 billion from $6.86 billion last year.

CFO Graf said fuel costs decreased 8 percent in the quarter,due to a six percent lower jet fuel prices and fewer flighthours.

Dave Bronczek, chief executive of the company’s expressdivision said FedEx has been using high reliability, low fuelplanes like the 777s in its international network, and replacingolder planes as a part of being cost effective. running costeffectiveness.