FedEx cuts outlook amid rising fuel costs, freight slump
— -- The Memphis-based shipper blamed soaring fuel costs and a troubled U.S. freight market for the reduced estimate that led the company's shares to plunge 4.5% and set a 52-week low on Friday.
Alan B. Graf Jr., FedEx's chief financial officer, said in a release that the company's fuel surcharge system can't react quickly enough to cover rapid fuel price increases. He said fuel costs have risen more than 8%, or $85 million, since September.
Jet fuel prices have risen about 30% over the same period, Robert W. Baird analyst John Langenfeld said in a note to investors. "We see further risk to estimates if fuel levels do not stabilize," he said.
FedEx previously reduced its full-year outlook in September on worries about economic uncertainty from the downturn in the housing market.
Citigroup's John Kartsonas told investors that FedEx's fuel surcharges lag price changes by about six weeks, which explains short term effects on earnings.
"However, the lower annual guidance points to a more pessimistic outlook by the company, as fuel volatility tends to adjust over time, something that is not reflected in today's announcement," he said.
FedEx's less-than-truckload freight trends have been weak, "despite economic signs that the decline in U.S. industrial production has hit bottom," Graf said.
The company is reviewing ways to cut expenses and is evaluating its capital investment plans, he said.
FedEx's second quarter ends Nov. 30 and does not take into account most holiday shipments. FedEx Express, the company's air-cargo division, traditionally experiences its busiest days in December.
FedEx said it expects to earn $1.45 to $1.55 a share in the second quarter, compared with a previous forecast of $1.60 to $1.75 a share. For the fiscal year ending in May, the company forecast earnings of $6.40 to $6.70 a share, down from a prior range of $6.70 to $7.10 a share.
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