"Our fourth-quarter earnings outlook has been impacted by higher-than-anticipated fuel prices and a weak U.S. economy," Chief Financial Officer Alan Graf said in a statement. "Looking ahead to our fiscal 2009, we are expecting a continuation of fourth-quarter trends, which would result in limited earnings growth next year.
DETROIT (Reuters) - FedEx Corp <FDX.N> on Thursday reported a higher-than-expected third-quarter net profit, but gave a low outlook for the current quarter citing soaring fuel prices and slowing U.S. economic growth, sending the package delivery company's shares down more than 2 percent.
"Our fourth-quarter earnings outlook has been impacted by higher-than-anticipated fuel prices and a weak U.S. economy," Chief Financial Officer Alan Graf said in a statement. "Looking ahead to our fiscal 2009, we are expecting a continuation of fourth-quarter trends, which would result in limited earnings growth next year.
"We are scrutinizing all expenses and investments to realign them with the current environment," he added.
Al Meyers, portfolio manager for the AHA Diversified Equity Fund, said the results showed "the downward economic spiral continues."
!ADVERTISEMENT!"The question is whether in three months time whether we'll see any improvement," he said.
The Memphis-based company reported net income for its quarter ending February 29, of $393 million, or $1.26 a share, down almost 7 percent from $420 million, or $1.35, a share a year earlier.
Wall Street analysts had on average expected earnings per share for the quarter of $1.23, according to Reuters Estimates.
In a conference call with analysts, high oil prices were mentioned repeatedly as weighing on the company's business.
Chief Executive Fred Smith said he saw "little justification" for current price levels and said the high costs had led to some customers shifting "to lower-cost services."
Revenue in the quarter rose 10 percent to $9.44 billion from $8.59 billion a year earlier. Analysts had expected revenue of $9.15 billion.
FedEx said revenue at its express delivery unit FedEx Express rose to $6.13 billion from $5.52 billion, but continued softness in the U.S. economy hurt margins.
FedEx's less-than-truckload (LTL) unit FedEx Freight saw revenue rise to $1.16 billion from $1.10 billion, with a 3 percent decline in shipments offset by higher freight rates.
LTL trucking companies consolidate smaller loads into a single truck.
Revenue at FedEx's ground delivery unit FedEx Ground rose to $1.72 billion from $1.52 billion, but margins were hurt by intercompany charges and "costs to enhance and defend" its independent contractor model.
FedEx faces lawsuits in more than 30 states that claim the contractors should be classified as employees. The Internal Revenue Service has also tentatively concluded that the 15,000 contractors at FedEx Ground should be reclassified as employees and that the company owes more than $319 million in taxes and penalties for 2002.
"I am concerned that we have this situation where the management is spending so much time, effort and money on this issue," said the AHA Diversified Equity Fund's Meyers. "For me, that is the only wart in FedEx's results."
FedEx said it expects fourth-quarter earnings per share of $1.60 to $1.80, well below the $1.98 predicted by analysts.
In the earnings conference call, CFO Graf told analysts that oil price volatility meant the company could miss that forecast "on either side."
"I don't have as much confidence (in that outlook) as I usually do, due to oil volatility," he said.
In light trading on the New York Stock Exchange, FedEx shares were down 75 cents, or nearly 1 percent, at $85.55.
Like main rival United Parcel Service Inc <UPS.N>, FedEx is considered a bellwether of U.S. economic health.
(Reporting by Nick Carey, editing by Mark Porter and Maureen Bavdek)
