FedEx shares fall on weak quarter, disappointing outlook
FedEx’s latest quarterly results missed Wall Street expectations, as lower fuel surcharges and the strong dollar cut into revenue at its big express-shipping business.
The package-delivery giant also announced an increase in the mandatory retirement age for board members, from 72 to 75. That could allow Chairman and CEO Fred Smith to stay on the job longer — he will turn 71 in August.
FedEx reported a loss of $895 million, or $3.16 per share, in the quarter ended May 31, as results were dragged down by a $2.2 billion charge for a change in accounting of pension costs.
The Memphis, Tenn.-based company said it would have earned $2.66 per share excluding the pension change, a write-down of aircraft, legal costs tied to settlement of a lawsuit by drivers in California, and other non-repeating items. But that adjusted profit still missed a forecast of $2.70 per share from a survey of analysts by Zacks and $2.68 per share from a FactSet survey.
Revenue was $12.11 billion, below the $12.39 billion estimate from Zacks and $12.30 billion from FactSet.
Cheaper oil meant that the company’s biggest business segment, FedEx Express, saved money on fuel, but that was wiped out by less revenue from lower fuel surcharges. Still, the unit’s adjusted operating margins rose thanks to cost-cutting.
Logan Purk, an analyst for Edward Jones, said results were improving at the express unit but he was concerned about the cost of recent acquisitions and shrinking margins at FedEx’s core ground business.
“It was a decent quarter, but expectations remain high,” Purk said in an interview.
On a conference call with analysts, Smith defended the company’s performance and suggested investors were losing sight of the big picture.
“The management team around this table is very confident that we will continue to increase margins, cash flows and returns,” he said.
Analysts quizzed executives about the threat that a customer could become a competitor by getting into the delivery business. The Wall Street Journal reported that Amazon.com Inc. is developing a system to use regular people to drop off packages.
Mike Glenn, a FedEx executive vice president, said challengers would face “a pretty tall hill to climb.” It would take time and money to build a delivery network, and customers like the security of a uniformed delivery person, he said.
Wednesday’s results closed out the company’s fiscal year. For the year ending in May 2016, FedEx said it expects adjusted earnings between $10.60 and $11.10 per share. The midpoint, $10.85, is slightly below the $10.89 forecast from analysts surveyed by FactSet.
FedEx said last week that it would take a $2.2 billion pretax charge in the May 31 quarter because it was changing pension accounting to record plan gains and losses in the fourth quarter of each fiscal year instead of spreading them over many years. The company said the change would make its results easier to understand.
In morning trading, FedEx shares were down $4.89, or 2.7 percent, to $177.24 after falling as low as $176.12 earlier in the day. They began the day up 5 percent in 2015, compared with a 2 percent gain in the Standard & Poor’s 500 index.