FedEx Corp reported lower-than-expected results for the holiday quarter and gave a fiscal-year profit forecast below Wall Street estimates, the latest in a line of companies saying they were hurt by winter storms.
The world’s No. 2 package delivery company said the unusual weather had disrupted operations, reduced shipping volumes and increased costs, decreasing operating income by about $125 million in the third quarter ended on February 28.
But the company also said it was on track with its plan to improve earnings at the FedEx Express air delivery unit by $1.6 billion by the end of 2016.
For this fiscal year, the company expects to earn $6.55 to $6.80 a share, while analysts on average had forecast $6.89, according to Thomson Reuters I/B/E/S.
FedEx’s numbers are the first real look at the impact the brutal winter had on the shipping industry. Temperatures across a vast area of the United States, from the Great Plains through the Midwest and into the northern Appalachians, ran 6 to 10 degrees Fahrenheit (3.3 to 5.5 degrees Celsius) below normal for 2-1/2 months straight.
Companies across the board have been talking about how the weather hurt their quarterly results. McDonald’s Corp partly blamed a fall in January sales at its established U.S. restaurants on the frigid cold and snow, while vitamin and nutritional supplements retailer GNC Holdings Inc warned that its first-quarter results would miss expectations for that reason.
Ford Motor Co, railroad operator CSX Corp and air carrier United Continental Holdings Inc have also said the weather was affecting operations in the first quarter.
During the third quarter, FedEx entered into an accelerated share repurchase agreement to buy back an aggregate of $2.0 billion of common stock.
The third-quarter results benefited from Cyber Week, a heavy online shopping period that had fallen in the second quarter last year, as well as from one additional operating day, the company said.
However, problems stemming from the harsh winter overshadowed those benefits.
Apart from bad weather, FedEx, like bigger rival United Parcel Service Inc, was also hit by an unprecedented surge in online holiday shipping volumes.
Typically, a rise in online sales is good news for companies like these because it means more demand for their services. But this time, UPS said it had been overwhelmed by the volume of holiday packages. The arrival of Christmas presents around the globe was delayed, and angry customers took to social websites to complain.
However, on a conference call with analysts, FedEx Chief Executive Officer Frederick Smith said the company was able to handle a rise in volumes and that social media might have blown the problems out of proportion.
“We live in a world where Twitter and social media makes anecdotes,” Smith said. “That was the big difference.”
While an increase in e-commerce was helpful to FedEx, he said, many shippers did not have the ability to handle last-minute orders, which added to the holiday delivery congestion.
Many industry experts think shoppers are more comfortable with making online purchases at the last minute because large online retailers like Amazon.com Inc can deliver the orders in one or two days. Not all retailers have the necessary infrastructure to do that, however, so courier companies saw a huge rise in last-minute shipping volumes.
In the third quarter, average daily volume at FedEx’s ground unit rose 8 percent.
The company earned $378 million, or $1.23 a share, compared with $361 million, or $1.13 a share, a year earlier. Analysts on average were expecting $1.45 a share, according to Thomson Reuters I/B/E/S.
Revenue rose 3 percent to $11.3 billion, missing forecasts of $11.43 billion. (Reuters)