FedEx Shares Droop Despite Outlook - TheStreet

FedEx Shares Droop Despite Outlook

The company says its earnings missed Wall Street estimates but that the full-year outlook is solid.
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Updated from 8:28 a.m.

FedEx

(FDX) - Get Report

shares shed 4.4% on Wednesday after the company posted second-quarter earnings that missed Wall Street estimates.

The carrier posted net income of $91 million, or 30 cents a share, according to generally accepted accounting principles. The results include costs related to the company's voluntary job-reduction program. On a pro forma basis, which is comparable to analyst estimates, FedEx reported net income of $266 million, or 87 cents a share, which missed the 90 cents a share expected by analysts, but was higher than the year-ago 81 cents a share.

Second-quarter revenue came in at $5.92 billion, which narrowly topped analyst estimates, and is higher than the year-ago $5.667 billion. Shares of FedEx dropped $3.30 to $71.01 on the news.

"We expect FedEx Corp. earnings per share for the fiscal second half to be substantially higher than last year's second half," said Alan B. Graf, Jr., executive vice president and chief financial officer. "We continue to examine cost-reduction opportunities for fiscal 2004 and beyond in order to further improve profitability."

Going forward, FedEx said third-quarter earnings would come in between 60 cents and 70 cents a share, against current Wall Street estimate of 68 cents a share. The company said fiscal 2004 earnings will come in between $3.30 and $3.40 a share, which is above the current consensus estimate of $3.30 a share.

The company also updated the results of its voluntary job-reduction plan, which ran from Aug. 1 and expired during the second quarter. The company said the program was more popular than expected, leading to a pretax charge of $283 million, which boosts the total program cost to date to $415 million. In the second half, the company said it would take between $15 million and $25 million in charges related to the plan, bringing the total cost of the program above previous company estimates.

But while charges related to the plan will be higher, so will the cost savings. FedEx said it expected cost savings to come in above prior estimates, ranging between $135 million and $145 million in fiscal 2004, with much of those savings seen in the second half of the year. In fiscal 2005, FedEx estimated that it would save between $235 million and $240 million, better than previously expected.

The effort to reduce costs is part of FedEx's plan to reach double-digit operating margins in its express shipping business, which accounted for 72.9% of FedEx's total revenue in the second quarter. The company said second-quarter express operating margins came in at 6.1%, up from 5.6% in the year-ago quarter.

While domestic express shipping volumes dipped slightly, revenue from the company's international shipping business rose 14% for the quarter, with revenue per package gaining 10%. All told, FedEx said average daily international package volume rose 4% on the year, with Asian markets up 11%. Recently, FedEx announced plans to build a new regional headquarter in Shanghai, to capitalize on the growing Asian market.

Ground shipments, where FedEx lags industry leader

UPS

(UPS) - Get Report

, accounted for $978 million in revenue, up 8% from the year-ago quarter. Profit in the ground unit was flat with the year-ago quarter as operating margins for ground shipping dropped to 13.8% from the year-ago 14.8%.