FedEx 4Q profit down, international customers choose cheaper service amid low-growth economy

DALLAS – FedEx Corp.’s fourth-quarter profit fell 45 per cent as international customers traded down to less-expensive delivery options and the company spent heavily on restructuring.

FedEx said 3,600 employees will take voluntary buyouts and nearly half of them have already left. The company is also retiring older airplanes.

Excluding charges related to those moves, FedEx’s results still beat Wall Street expectations. But the company’s profit forecast for the next 12 months was less than analysts predicted.

After falling briefly, FedEx shares rose $1.06 to close at $100.54 Wednesday. Its shares have fallen 8 per cent since their peak for the past year of $109.55 in mid-March.

FedEx executives said that their ground-services business remained strong and margins improved in the freight business, but that didn’t fully offset weak global economic growth and a decline in priority international air shipments.

The Memphis, Tenn.-based company’s big FedEx Express division has been dealing with a shift among customers away from priority international air shipments to cheaper but slower options. In the quarter, international priority shipments fell 2 per cent while economy deliveries rose 11 per cent.

Chairman and CEO Fred Smith said that the trend toward economy shipments “is not necessarily a bad thing, and it doesn’t necessarily mean that Express can’t make more money on the economy business.”

Smith sounded increasingly exasperated as analysts repeatedly asked when the trend toward cheaper air services might end. He bristled when an analyst asked about specific changes that the company might make in its international operations.

“I think the problem we have is trying to answer questions like you just asked us,” Smith said. “The international air cargo business is not going to go away … you’ll just have to trust us to know how to manage the business.”

FedEx said it plans to further cut delivery capacity between Asia and the United States in July — such cuts began April 1.

FedEx is the world’s second-largest package delivery company. It handles shipments from businesses to consumers and other companies. Because it has such a huge and varied customer base, it’s often seen as an economic bellwether.

The company earned $303 million, or 95 cents per share, in the fourth quarter, which ended May 31. That’s down from $550 million, or $1.73 per share, a year earlier.

FedEx is trying to cut annual spending by $1.7 billion through job buyouts and other steps. Severance and other restructuring costs totalled $496 million after taxes, or 98 cents per share, in the fourth quarter. The company also took a write-down of $100 million, or 20 cents per share, as it retired 10 airplanes.

Excluding those items, FedEx would have earned $2.13 per share, which beat analysts’ forecast of $1.96 per share in adjusted earnings.

For the fiscal year that started June 1, the company forecast that adjusted earnings will grow between 7 per cent and 13 per cent. That would suggest a range of $6.67 to $7.04 per share. Analysts surveyed by FactSet were expecting $7.28 per share in the new year.

Fourth-quarter revenue rose 4 per cent to $11.44 billion, just below analysts’ forecast of $11.46 billion.