FedEx has sharply reduced its Q2 and full-year profit forecasts due to soaring fuel costs andweaker demand for US domestic trucking. The announcement on Friday prompted a 4.5% slump in its
share price, the heaviest fall for over a year.The US express and freight group announced that earnings for the second quarter endingNovember 30, 2007 are expected to be in the range of $1.45 to $1.55 per diluted share, compared tothe previous forecast of $1.60 to $1.75. For the full fiscal year, the company now expects earningsof $6.40 to $6.70 per diluted share, compared to the previous forecast of $6.70 to $7.10.
“Since we provided earnings guidance for the second quarter in September, our fuel costs haveincreased more than eight percent, or $85 million,” said Alan B. Graf, Jr., FedEx Corp. executivevice president and chief financial officer. “While we have dynamic fuel surcharges in place, theycannot keep pace in the short-term with rapidly rising fuel prices.
“In addition, less-than-truckload freight trends in the FedEx Freight segment remain weak,despite economic signs that the decline in U.S. industrial production has hit bottom. We are takingprudent steps to reduce expenses, and are reviewing our capital investment plans for furtherreductions.”
FedEx said it will provide additional financial and operating details when the companyreleases second quarter earnings on December 20, 2007. Separately, the FedEx board of directorsdeclared a quarterly cash dividend of $0.10 per share on FedEx Corp. common stock. The dividend ispayable January 2, 2008 to stockholders of record at the close of business on December 12, 2007.
Financial markets responded promptly to the news, sending FedEx shares down during trading.The stock closed down 4.5% at $96.80. UPS shares also declined by 1.49% to $72.01 on Friday.
The announcement followed the recent decline in FedEx and UPS domestic US results due to theslowing economy, and the warning by UPS that it expected the slowest Christmas season for sometime. Both FedEx and UPS have already announced rates increases of 4.9% for January 2008 in a moveto try to boost revenues and compensate for higher costs.
