FedEx Delivers Tepid Forecast (Update)

Updated from 8:39 a.m. EDT

FedEx (FDX Quote) disappointed investors Wednesday, reporting a net loss and projecting continued harsh economic conditions for the remainder of the year.

However, the overnight package carrier said the economy is improving and it forecast growth in the first half of calendar year 2010, partially due to reduced costs and better year-over-year comparisons. Additionally, after allowing for one-time items, the company topped analysts' estimates for its fiscal fourth quarter.

Nearing midsession, shares were trading down 2.8% at $50. UPS(UPS Quote) shares were down 1.4% to $47.78.

On a conference call, CEO Fred Smith said "the worst of the recession is likely behind us, [and] we remain optimistic about a turnaround in calendar year 2009." Smith pointed to positive trends including moderating inventory-to-sales ratios, potentially leading to restocking, as well as improvements in equity and credit markets and in manufacturing, housing, global trade and consumer confidence numbers.

The company's fiscal fourth quarter, which ended May 31, reflected "a brutal economic environment," said CFO Alan Graf. Revenue fell by $2 billion, or 20%, because of lower volume, rate pressures, smaller packages and reduced fuel surcharges. Graf said fuel surcharges set in April and May were "a substantial drag on first-quarter earnings, [which], if they stay where they are, should balance out in the rest of the year." The surcharges are set monthly and failed to capture the impact of the recent run-up in oil prices.

In a prepared statement released before the market opened, Graf said "the operating environment for our first two quarters in fiscal 2010 is expected to be extremely difficult. Manufacturing activity is expected to be substantially negative year over year through the summer and last year's first-quarter results benefited from stronger economic activity, making earnings comparisons difficult."