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December 23, 2009 > FedEx sees stumbling blocks before recovery

FedEx sees stumbling blocks before recovery

By Samantha Bomkamp, AP Transportation Writer

NEW YORK (AP), Dec 17 - FedEx says the economy has ``reached a turning point,'' but a full recovery could still be a long way off.

The world's second-largest package delivery company issued a tepid outlook for the quarter that ends in February, saying it's not sure if strong holiday season shipping volume will hold up. But in the long run, it sees strong demand in Asia and Latin America leading the way to global economic recovery.

Both FedEx and rival UPS are key indicators of the nation's economic strength because they carry a wide range of business and consumer goods - everything from auto parts and real estate documents to toys and tools.

FedEx said Thursday its earnings for the quarter that ended in November fell 30 percent from a year ago, and its forecast for the fiscal third quarter fell well below what Wall Street was expecting. FedEx predicts earnings of 50 to 70 cents per share this quarter, well under analysts' estimates of 84 cents per share.

Anthony Sabino, professor of law and business at St. John's University, said FedEx's results highlight ``just a smidge more economic activity,'' while noting that a full and sustained recovery is still a long way off.

``Overall, (the results are) a good sign, but it should inspire caution and the realization that the economy, both American and global, is nowhere near a full recovery yet, and has a while to go.''

Despite the cautious near-term forecast, CEO Fred Smith said in a conference call that he thinks the U.S. economy turned the corner during the company's second fiscal quarter, which went from September to November.

FedEx saw strong demand from Asia and Latin America and predicts better results for the second half of the fiscal year ending in May. It forecast full-year earnings above what most Wall Street analysts expect. FedEx sees profit of between $3.45 and $3.75 per share, compared with the average analyst estimate of $3.46.

FedEx is adding more flight hours to meet international demand in the current quarter, which will increase its costs. The company cut flight hours during the September-to-November quarter by 6 percent as it used fewer and more fuel-efficient airplanes. But as package volume started picking up in the quarter, especially in Asia and Latin America, the company scheduled more flights.

FedEx Express President and CEO Dave Bronczek said the company is ``having a hard time keeping up'' with the improving volume out of those regions.

The company also will resume merit salary increases in 2010 and half of the 401(k) company match for most U.S. workers. The program was suspended a year ago at the height of the economic collapse.

In the September-to-November period, FedEx Corp. earned $345 million, or $1.10 per share, compared with $493 million, or $1.58 per share a year earlier. The results matched an announcement last week, when FedEx said earnings for the quarter would be higher than expected. Revenue fell 10 percent to nearly $8.6 billion.

Thomson Reuters says analysts expected profit of $1.06 per share on revenue of $8.46 billion.

In the second quarter, package volume rose in nearly every business segment, but the company still reported double-digit sales declines in major segments including Express, Freight and Services. Sales in the company's Ground segment, in most cases the least-expensive shipping option, rose 3 percent mostly because of added volume from a partnership with the U.S. Postal Service and DHL's exit from the U.S. market.

FedEx shares fell $5.02, or 5.6 percent, to $84.93 in afternoon trading.

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