FedEx cuts forecast as air freight weakness hits profit

Reuters: FedEx Corp cut its full-year forecast after a worse-than-expected quarterly profit as customers shift from air express to slower but cheaper modes of international shipping.

The No. 2 US package-delivery company said it would step-up restructuring efforts, cut capacity in Asia and realign its global aircraft network to cut costs and boost earnings.

The company’s express unit, its biggest source of revenue, has been hit as more cost-conscious international customers opt to use container ships instead of costly overnight shipment by air. Operating income in the express unit fell 66% in the third-quarter ended 28 February.

FedEx said the express unit had underperformed largely due to weakness in Asia and other international markets, where margin pressures caused by excess capacity in the air freight industry had more than offset increased volumes.

“We have a yield issue that exaggerated itself this quarter over last quarter,” FedEx Express CEO Dave Bronczek, said on a conference call with analysts.

FedEx, the world’s biggest air freight company, plans to cut express capacity to and from Asia from 1 April and is looking at reducing its fleet by retiring more of its older, less-efficient aircraft, among other options to realign its network.

FedEx, considered an economic bellwether because of the massive volume of goods it moves, forecast fourth-quarter adjusted earnings of US$ 1.90 to US$ 2.10 per share. Analysts on average expect US$ 2.07 per share.

The company now expects a profit of US$ 6.00 to US$ 6.20 per share for fiscal 2013 ending 31 May. It had earlier forecast US$ 6.20 to US$ 6.60 per share. Analysts on average expect earnings of US$ 6.31 per share, according to Thomson Reuters.

Rival United Parcel Service, which reported quarterly results in January, forecast weaker-than-expected 2013 profit, citing an uneven global economy.

UPS has less exposure to international markets than FedEx, Mars said. It also has more ground operations than air.

FedEx announced plans in October to improve profits by US$ 1.7 billion over four years by cutting costs in the express unit.

FedEx said a number of its executives accepted voluntary buyouts in early February, and that it had notified thousands more of their eligibility for buyouts.

Revenue rose 4% to US$ 11.0 billion. Analysts expected earnings of US$ 1.38 per share on revenue of US$ 10.85 billion.