FDX Posts Lower Earnings but Beats Estimates

The Federal Express parent attributed its underperformance to higher fuel prices.
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(FDX) - Get Report

, the parent of

Federal Express

, reported lower earnings Thursday that still managed to beat Wall Street's expectations.

Alan B. Graf Jr., the chief financial officer of the express package delivery company, attributed FDX's underperformance to higher fuel prices, which have risen significantly over the last few months. Graf also warned that fuel prices could sap $200 million more from operations in fiscal year 2000, should prices remain this high.

Despite this warning, FDX's shares rose or 2 3/16, or 6%, to 41 by midmorning Thursday. (FDX settle dup 4 1/16, or 10%, to 42 7/8.)

FDX, which is based in Memphis, said its earnings for its second fiscal quarter ended Nov. 30 fell 6.6% to $171 million, or 57 cents a diluted share, from $183 million, or 61 cents a share, in the year-earlier quarter. The consensus of analysts polled by

First Call/Thomson Financial

was for the company to earn 55 cents in the latest quarter.

Along with fuel costs, analysts say the Internet is cutting into FDX's bottom line. "The whole overnight business, which is the meat of their operation, has been negatively impacted by the Internet and e-commerce," said Carole Neely, an analyst at

Brown Brothers Harriman

. Neely explained that transactions between potential FedEx customers have increasingly been conducted exclusively on the Internet, cutting FedEx out of the equation. Neely's firm rates FDX's stock a near-term neutral. The firm has not underwritten any FDX offering.

Operating income dropped 10% between the same periods.

FedEx had told analysts last quarter to expect a $150 million bite out of operating income for its fiscal year 2000 from higher gas prices.

Analysts have sounded warnings that the company has been hurt by having no fuel surcharges in place. These are contracts with customers where the customer is charged extra for gas costs past a certain point.

Sales for the company increased 9%, to $4.6 billion, from $4.2 billion in the year-earlier quarter.

The company said it would "realign" its sales force to increase domestic growth. The sales representatives will focus on small and medium-sized customers, and FDX change the sales force compensation incentive program.

Neely speculated that FDX would soon be hiring more sales people because of the realignment.