Last updated: March 19, 2014 6:25 pm

Harsh winter hits FedEx profits

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments
A FedEx Boeing 777 aircraft©AFP

FedEx, the express parcels delivery service, on Wednesday became the latest North American transport company to produce disappointing quarterly results and cut forecasts because of the continent’s severe winter weather.

FedEx slashed its earnings forecast for the full year to a range of $6.55 to $6.80 per share, down from a previous forecast suggesting earnings of around $6.97, after announcing third-quarter net income of $378m, well short of analysts’ $471m forecasts.

The company said “unusually severe winter storms” throughout the quarter had disrupted operations, reducing volumes and increasing costs. The quarter’s $641m operating income had been reduced by around $125m.

A range of companies – including carmakers, who have said customers have been reluctant to buy cars from freezing, snow-covered dealers’ lots and transport operators – have blamed bad results on the harsh weather.

CSX, the biggest railway in the eastern US, last week warned that the harsh winter would severely affect its first-quarter profits and hold back its profit growth for the full year. The Canadian government has ordered Canadian National and Canadian Pacific, the rail operators, to move grain faster after bad weather held up movements of last autumn’s record harvest.

“Historically severe winter weather significantly affected our third-quarter earnings,” Fred Smith, chief executive, said.

On days when the weather was closer to normal seasonal conditions, volumes had been solid and service levels high, Mr Smith added. The company’s distinctive strategy of maintaining separate ground and air express networks and running multiple hubs had proved an advantage in the difficult conditions, he went on.

FedEx’s results come after UPS, its rival, produced disappointing figures for its September to December quarter after unexpectedly high volumes of pre-Christmas e-commerce overwhelmed its network.

Both companies are widely seen as barometers of the health of the US and world economies.

FedEx’s figures for the December to February quarter compared with figures for the same period last year that were hit by a $47m charge for voluntary redundancy for some senior executives.

Net income for the quarter was up 5 per cent on last year, to $378m, on revenue up 3 per cent to $11.3bn. Diluted earnings per share – which benefited from FedEx’s share repurchase programme – rose 9 per cent to $1.23.

The company’s operating results reflected the continuing shift from high-value premium air express services to lower-yielding products that has dogged the company over the past two years.

Operating income in FedEx Express – the core parcels service – rose 14 per cent to $135m, on revenue down marginally from $6.7bn to $6.67bn. Average daily international priority package volumes declined 5 per cent, in line with the move downmarket, while international economy volumes grew 8 per cent.

Operating income for FedEx Ground grew 2 per cent to $477m, on revenues up 10 per cent to $3.03bn.

For FedEx Freight, the freight forwarder, operating income rose from $4m to $29m, on revenues up 9 per cent to $1.35bn.

Alan Graf, FedEx’s chief financial officer, said the weather’s effect on the company’s performance had been “significantly more pronounced” this year than previous years. The company’s plan outlined in 2012 to improve FedEx Express’s profits remained on track, however, he insisted.

In premarket trading, shares held steady at $138.50.

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments


Sign up for email briefings to stay up to date on topics you are interested in

Enter job search