FedEx Looks Forward to New Year

FedEx is confident it is emerging from the economic slowdown.
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MEMPHIS, Tenn. (


) --


(FDX) - Get Report

said its fiscal 2010 results will exceed analyst expectations, but its current quarter forecasts are lower.

During the current quarter, its fiscal third quarter, the overnight package company expects to earn 50 cents to 70 cents a share, below analyst estimates of 84 cents. "The third quarter is always our weakest, particularly post-holiday," said CFO Alan Graf on an earnings conference call.

In a prepared statement released prior to the call, Graf noted, "There is some uncertainty regarding the sustainability of current demand trends after our peak shipping season."

FedEx is "having a strong December" but is having to increase employee hours to maintain service levels, Graf said on the call. FedEx Express CEO Dave Bronczek said the division pulled back flying by 6% during the quarter, but now sees backlogs in some international markets and is having to restore flights.

For fiscal year 2010, the company expects earnings of $3.45 to $3.75 a share, generally above the consensus estimate of $3.46. "Traffic is very positive and we should have a lot of momentum going into the fourth quarter and fiscal 2011," Graf said, adding that the global economy "should improve modestly in the second half."

The company had preannounced earnings for its fiscal second quarter, which ended Nov. 30. The resutls exceeded expectations, prompting a jump in the stock price, which began December at $85.39. But the price fell back Thursday; at midmorning, shares were trading at $85.81, down $4.60.

During the quarter, earnings fell 30% as FedEx earned $345 million or $1.10 a share. Analysts surveyed by Thomson Reuters had estimated $1.06. Revenue fell 10% to $8.6 billion. Analysts had estimated $8.5 billion. A year earlier, net income was $493 million.

Revenue and earnings declined as a result of lower yields, primarily due to a substantial decline in fuel surcharges year over year, the company said. Shipments increased, particularly in international express and at FedEx Ground, and strict cost controls benefited results, the company said.

Prior to Dec. 7, when FedEx pre-released earnings, its guidance was 65 cents to 95 cents a share. The company said it will resume merit salary increases in 2010 as well as a 50% resumption of its 401(k) match for most U.S. employees. The programs were suspended a year ago.

In general, the tone of the earnings call was upbeat, as CEO Fred Smith proclaimed "positive momentum in the global economy drove volumes higher in all segments" and said "we expect stronger demand for our services in the second half of fiscal year 10."

-- Written by Ted Reed in Charlotte, N.C.