Azernews.Az

By Bloomberg

FedEx Corp. narrowed its full-year profit forecast as a strong holiday shipping season was offset by the effects of a strengthened dollar and falling fuel surcharges for the operator of the world’s largest cargo airline.

Earnings will be $8.80 to $8.95 a share in the fiscal year ending May 31, the Memphis, Tennessee-based company said in a statement Wednesday. FedEx had reiterated a forecast of $8.50 to $9 a share as recently as Jan. 23, and the average of 26 analysts’ estimates surveyed by Bloomberg was $8.98.

FedEx is in the middle of a $1.7 billion cost-cutting program begun in 2012, primarily aimed at FedEx Express, which is the company’s airline business. Third-quarter revenue of $6.66 billion at the unit, the company’s largest, declined slightly from a year earlier as lower fuel surcharges and the currency impact trimmed the benefits of higher volume growth.

“What’s underappreciated on FedEx is that people believe they can make a big improvement in profitability by turning Express around,” Kelly Dougherty, a Macquarie Capital USA Inc. analyst in New York, said before results were announced. “If they do that and keep capex relatively constant, they’re going to generate a lot of free cash flow. That’s not something they’ve done before.”

Quarterly Earnings

Third-quarter earnings of $2.01 a share topped the $1.88 average of 23 analyst estimates compiled by Bloomberg. The results for the period, which included peak volumes for holiday packages, contrasted with those of United Parcel Service Inc., whose quarterly profit trailed analysts’ estimates. UPS is the world’s biggest delivery company, with a larger ground operation than FedEx’s.

“We expect continued revenue and earnings growth this year, driven by ongoing improvements in all of our transportation segments,” Chief Financial Officer Alan Graf said in the statement. “We expect to deliver record fourth quarter and fiscal year earnings.”

FedEx shares fell less than 1 percent to $174.15 at 8:30 a.m. The stock is outperforming UPS and other industrial companies in the Standard & Poor’s 500 Index. The stock’s 1.2 percent gain this year through Tuesday topped a 10 percent drop for Atlanta-based UPS and a 0.7 percent decline for the S&P 500 Industrials Index.

Falling fuel prices are providing a tailwind for transportation companies. Crude on the New York Mercantile Exchange averaged 46 percent less in the three months ended on Feb. 28 than a year earlier. Jet kerosene dropped 40 percent.