Posted on June - 16 - 2010
FedEx’s ‘prudent’ earnings projections make some Wall Street analysts uneasy
Richard Drew/Associated Press
FedEx officials predicted solid profits in a forecast released Wednesday, and although some Wall Street analysts were uncertain, company head Frederick W. Smith said, “People have an undue sense of pessimism as to what’s actually happening out there, in my opinion.”
FedEx officials said Wednesday they expect “steady, moderate growth” in U.S. and world economies to produce solid profits for the Memphis-based company in the coming year.
The company’s earnings forecast disappointed analysts and sent ripples down Wall Street, where FedEx is considered a bellwether of the world economy.
But officials painted an upbeat picture of rising demand for international and domestic offerings and a company determined to stop losses in its less-than-truckload freight service.
“I think the range we’ve given you is very thrilling from an EPS (earnings per share) growth rate,” executive vice president and chief financial officer Alan B. Graf Jr. said.
FedEx chairman, president and CEO Frederick W. Smith added that the company, especially with premium international service geared toward door-to-door movement of high-value, time-sensitive goods, is in prime position to capitalize on fast-growing economies of China, India and Brazil.
“People have an undue sense of pessimism as to what’s actually happening out there, in my opinion,” Smith said.
The company outlook calls for earnings of $4.40 to $5 a share for the year that began June 1, short of analysts’ expectations of $4.65 to $5.45 a share.
Officials said the guidance is based on their chief economist’s projections of 3.2 percent growth in the U.S. economy and 3.1 percent growth in the world economy during the fiscal year.
“I thought today’s release was in line with expectations,” said analyst Helane Becker with Jesup & Lamont Securities. “Guidance was less than we were hoping for,” but previous projections underestimated the impact of a pension contribution.
Donald Broughton, analyst with Avondale Partners LLC, said FedEx was just being prudent.
“I think it’s interesting they’re going to make as much as they’re going to make despite the pension. They’re giving guidance of earnings to be up 17 to 33 percent. I think this is a prodigious amount of earnings growth, and they should be proud of it, and the market’s freaking out about it.”
“Do I think they’re going to beat those expectations? I certainly do. I’m going to leave my guidance above five bucks,” Broughton added.
Annual revenues for the year ending May 31 were $34.7 billion, down 2 percent from last year, and quarterly revenues of $9.43 billion were up 20 percent from last year.
Fourth-quarter profits more than doubled from a year earlier, to $1.33 a share. Annual earnings held steady at $3.76 a share, even as the company ramped up spending on employees and equipment to meet growing demand.
Graf said first-quarter and annual earnings will experience some drag from costs associated with the ramp-up, such as restoring flight hours and employee benefits and maintenance of aircraft that had been in storage.
The company said it plans to spend $3.2 billion on capital investments this year, up from $2.8 billion last year. Purchases will include more fuel-efficient long-range aircraft: 16 Boeing 757s and six Boeing 777Fs, a fleet addition that’s growing international business by offering customers later shipping times.
FedEx International Priority average daily package volume grew 23 percent in the last quarter, paced by exports from Asia. The average daily volume from Asia grew a whopping 41 percent, Graf said.
Domestically, FedEx Ground had its highest operating income ever, $319 million, up 57 percent from the fourth quarter of 2009.
FedEx Freight posted an operating loss of $36 million for the quarter, down from $106 million; and $153 million for the year, up from $44 million.
–Wayne Risher: 529-2874
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