MEMPHIS, Tenn. — FedEx Corp. indicated yesterday that the global economic recovery remains uneven. It said strength in international shipments is driving profits, but also announced plans to cut 1,700 jobs in an attempt to fix its money-losing U.S. trucking business.
The world’s second-largest package delivery company did raise its financial outlook after its first-quarter net income doubled. But the projections for the second quarter and full year fell shy of Wall Street expectations, and the stock dropped more than 4 percent in morning trading.
International air shipments have driven FedEx’s results for more than a year and international revenue rose 24 percent in the quarter ended Aug. 31. But the FedEx Freight segment lost money again as demand for large items like refrigerators and other large appliances continues to be weak. As it competes with other trucking companies to ship a limited amount of freight, FedEx has been forced to forgo the rate increases that are helping its other segments grow.
FedEx earned $380 million in the first quarter, but the freight unit lost $16 million. The unit moves goods between businesses and competes with other large trucking companies such as Arkansas Best and YRC Worldwide, which runs trucks under the Yellow, Roadway and New Penn names. It is separate from FedEx Ground, which trucks packages directly to consumers. FedEx Freight was started in 2001.
FedEx will combine its FedEx Freight and FedEx National less-than-truckload operations on Jan. 30 and closing 100, or 20 percent, of its service centers. The 1,700 job cuts represent about 5 percent of the freight division’s employees. Overall, FedEx has about 280,000 employees.
FedEx says the move, along with other cost cuts, will ensure the trucking business is profitable next year. Less-than-truckload shippers take goods from many different manufacturers and consolidate them into a single truck for delivery.
FedEx expects to earn between $1.15 and $1.35 per share for the quarter ending in November. Analysts were expecting $1.36 per share.
For the fiscal year that ends in May, FedEx forecasts net income at $4.80 to $5.25 per share. That’s up from a previous estimate of $4.60 to $5.20 per share. But some analysts had forecasts as high as $5.60 per share, according to Thomson Reuters.
“We expect a very solid peak season,” said Executive Vice President Mike Glenn, referring to the important holiday shipping period. “It always gets a little cloudy after that.”
While retailers aren’t optimistic about the holiday shopping season, FedEx has reason to show more holiday cheer. FedEx benefits from e-commerce business, which has outpaced brick and mortar retail growth as more people order gifts online. Also, retailers placed many holiday orders in the spring when their outlook for consumer spending was brightening. They now fear they may have ordered too much — bad for them, but good for shippers like FedEx.
The Memphis, Tenn., company earned or $1.20 per share in the fiscal first-quarter that ended in August, compared with $181 million, or 58 cents per share a year ago. That’s slightly under the $1.21 per share that Wall Street expected. Revenue rose 18 percent to $9.46 billion.
As overall business has improved, costs have risen. The reinstatement of some employee compensation programs, higher pension, medical and aircraft maintenance expenses — as well as the loss at FedEx Freight — countered improvements at its Express and Ground operations. Operating income at the Ground division rose 37 percent to $287 million.
BEFORE YOU GO…
… we’d like to ask for your support. More people are reading the Mississippi Business Journal than ever before, but advertising revenues for all conventional media are falling fast. Unlike many, we do not use a pay wall, because we want to continue providing Mississippi’s most comprehensive business news each and every day. But that takes time, money and hard work. We do it because it is important to us … and equally important to you, if you value the flow of trustworthy news and information which have always kept America strong and free for more than 200 years.
If those who read our content will help fund it, we can continue to bring you the very best in news and information. Please consider joining us as a valued member, or if you prefer, make a one-time contribution.Click for more info