September 5, 2012 12:04 am

FedEx earnings outlook cut sharply

FedEx shares fell nearly 3 per cent in after-market trading after the world’s largest express parcel service by revenues sharply cut its guidance on earnings for its just-completed first quarter, citing global economic weakness.

FedEx and UPS, its rival express package delivery company, are often seen as barometers for world economic health because of their role in facilitating goods movements worldwide.

The company downgraded its guidance for earnings during the quarter to August 31 to $1.37 to $1.43 per diluted share, against its previous guidance of $1.45 to $1.60. Last year’s first-quarter earnings were $1.46.

“Earnings during the quarter were lower than originally forecast, as weakness in the global economy constrained revenue growth at FedEx Express more than expected in the earlier guidance,” the company said.

The announcement – made after the New York market close on Tuesday – sent the shares down to $84.80 or 3.1 per cent. Shares in UPS also fell by 2 per cent to $72.21.

FedEx in June had already sounded pessimistic when announcing its fourth-quarter results – for the three months to May 31. It said then that it was seeking to cut costs after it announced a 1.4 per cent year-on-year fall in quarterly profits and a fall in volumes. It warned that global economic uncertainty – including the eurozone crisis and slowing growth in Asia – could hit its results for the present year.

FedEx gave no details as to which area’s weakness had depressed the first-quarter results but most international companies have reported much the biggest slow-down in demand in Europe as a result of the euro crisis. FedEx has around 10 per cent of the European express parcel market, behind DHL, the market leader, and TNT Express, which UPS is in the course of acquiring. FedEx is number two in the Asian express parcel market, behind DHL.

FedEx and UPS together are some of the most important forces in the US domestic parcel market.

Express parcel operators can be particularly sensitive to any market downturn because of their important role in replenishing the stocks of companies that find inventories suddenly lower. When inventories start to grow during a slowdown, demand for express services to replenish them can fall sharply.

FedEx said it had not yet closed its books for the quarter and that it would make further information available on September 18, when it published its quarterly results. In June, FedEx announced net income for the year to May 31 of $2.03bn on $42.7bn revenue.

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