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FedEx Q2 Profit Hit By Superstorm Sandy, Backs 2013 Outlook

FedEx Q2 Profit Hit By Superstorm Sandy, Backs 2013 Outlook
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12/19/2012 8:32 AM ET

Package delivery giant FedEx Corp. (FDX: Quote) reported Wednesday a profit for the second quarter that declined 12 percent from last year, hurt by lower operating margins. Striping down the impact of Superstorm Sandy, adjusted earnings per share and quarterly revenues topped analysts' expectations.

FedEx also issued earnings guidance for the third quarter, in line with Street view, and maintained its earnings outlook for the full-year 2013.

The performance of package shipping bellwethers like FedEx and its rival United Parcel Service, Inc. (UPS: Quote) are generally considered a strong barometer of overall consumer attitude and business confidence due to the large number of shipments they handle for consumers worldwide.

"Operating income for the quarter improved at FedEx Freight and FedEx Ground due to increased volumes and higher yields, while persistent weakness in the global economy and increased demand for lower-yielding international services limited profits at FedEx Express," Chairman, President and CEO Frederick Smith said.

The Memphis, Tennessee-based FedEx, a Dow component, reported net income of $438 million or $1.39 per share for the second quarter, lower than $497 million or $1.57 per share in the prior-year quarter. Results for the latest quarter were negatively impacted by $0.11 per share as superstorm Sandy reduced shipment volumes and increased operating costs. Excluding the impact, adjusted earnings per share would have been $1.50 per share.

On average, 24 analysts polled by Thomson Reuters expected the company to report earnings of $1.41 per share for the quarter. Analysts' estimates typically exclude special items.

Total revenue for the quarter increased 5 percent to $11.11 billion from $10.59 billion in the same quarter last year, and topped nineteen Wall Street analysts' consensus estimate of $10.84 billion by a whisker.

In order to overcome the general economic weakness, the company announced in late November it will increase shipping rates for FedEx Ground and FedEx Home Delivery by a net average of 4.9 percent, and a 3.9 percent increase for FedEx Express' U.S. domestic, U.S. export and U.S. import services, all effective January 7, 2013.

FedEx SmartPost rates also will change. FedEx Freight implemented a 6.9 percent general rate increase on July 9, 2012.

Operating margins for the quarter contracted 90 basis points to 6.5 percent from last year's 7.4 percent.

Looking ahead to the third quarter, FedEx expects earnings in a range of $1.25 to $1.45 per share, while analysts expect the company to report earnings of $1.45 per share.

For fiscal 2013, the company maintained its adjusted earnings guidance in the range of $6.20 to $6.60 per share. Street is currently looking for full-year 2013 earnings of $6.39 per share. The capital spending forecast for fiscal 2013 also remains at $3.9 billion.

The company said in early October that, it is looking to nearly double its annual profit by about $1.7 billion, over the next three years through cost cuts at Fedex Services and Fedex Express. The company is also planning to boost its dividends in the years to come.

"We expect to begin to see the benefits of these actions in fiscal 2014, with a significant portion of the profit improvement achieved by the end of fiscal 2015. Meanwhile, the mounting uncertainty in the U.S. related to fiscal policies and their potential to impact earnings by further restraining economic growth is a concern," CFO Alan Graf Jr. noted.

FDX closed Tuesday's regular trading session at $92.36, up $1.47 on a volume of 3.13 million shares, higher than the three-month average volume of 2.22 million shares. In the past 52-week period, the stock has been trading in a range of $82.38 to $97.19.

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by RTT Staff Writer

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