FedEx Cuts Outlook Again as Unit Strains -- WSJ

By Paul Ziobro 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 20, 2019).

FedEx Corp. cut its outlook for the second consecutive quarter after it reported a decline in revenue in its express unit and lower profit in its ground business from the higher cost of operating six days a week.

The global delivery giant said softening macroeconomic conditions and weaker global trade trends continue to harm its international shipping business. Shippers also are sending lighter packages using slower, cheaper options in the express business, where the average price charged per package fell 2%.

FedEx Chief Executive Fred Smith said the results were below expectations. "We are focused on initiatives to improve our performance."

FedEx is navigating a period of turbulence in its express air-delivery unit. It has switched CEOs at the unit twice in the past three months and is struggling to smoothly integrate the European delivery company TNT Express, which it bought for $4.8 billion in 2016.

The Memphis, Tenn.-based company is trying to absorb the slowdown by reducing international capacity, limiting hiring and cutting back on discretionary spending. It recently enacted an voluntary buyout program for employees to save up to $275 million a year. Chief Financial Officer Alan Graf on Tuesday said FedEx is looking at additional actions in light of weaker-than-expected revenue.

Meanwhile, in the U.S., FedEx's ground business posted a 6% drop in operating income, in part due to higher costs from moving to a six-day operating schedule year-round. Previously, FedEx would operate six or seven days a week around the holiday season but rising demand for shipments has pushed the company to use its delivery network more.

Investors have been hoping that FedEx could rein in some of its capital spending and focus on boosting margins and returning more capital to shareholders through actions like increased stock buybacks. But Mr. Smith defended FedEx's spending on upgrading its aircraft fleet and adding to its shipping capacity.

"The perspective of Wall Street is always, 'Give me the money,'" Mr. Smith said. "The perspective from inside FedEx is, 'What's the best thing we can do for the long term?'"

For the quarter ended Feb. 28, FedEx reported a profit of $739 million, or $2.80 a share, compared with $2.07 billion, or $7.59 a share, a year earlier, when the company benefited from a lower deferred-tax liability due to the new tax law. Adjusted for integration expenses and the tax benefit, per-share earnings were $3.03 compared with $3.72 last year.

Revenue rose 3% to $17 billion. The express unit posted a 1% revenue drop, while revenue in the ground unit rose 9%.

Analysts polled by Refinitiv most recently expected earnings of $3.11 a share on $17.67 billion in revenue.

For the year, FedEx projected earnings of between $11.95 and $13.10 a share, down from $12.65 to $13.40 previously.

FedEx executives continued to play down the ability of Amazon.com Inc., which is adding more planes and trucks as well as delivering more of its orders to homes, to disrupt the delivery market. Chief Operating Officer Rajesh Subramaniam said] Amazon represents only 1.3% of FedEx's revenue and isn't "a threat to our future growth."

FedEx shares, which have dropped more than 27% over the last year, fell an additional 4.9% in after-hours trading to $172.34. Shares of United Parcel Service Inc. also fell 1.5% in late trading to $108.75.

Write to Paul Ziobro at [e-mail]

(END) Dow Jones Newswires

March 20, 2019 02:47 ET (06:47 GMT)

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