Package delivery giant FedEx Corp. (FDX) reported Wednesday a profit for the third quarter that declined 31 percent from last year, hurt by shrinking operating margins at FedEx Express as customers found cheaper ways to ship freight.
Adjusted earnings per share missed analysts' expectations, while quarterly revenues topped their estimates by a whisker.
FedEx also issued earnings guidance for the fourth quarter, below Street view, and slashed its earnings outlook for the full-year 2013.
The performance of package shipping bellwethers like FedEx and its rival United Parcel Service, Inc. (UPS) 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.
"The third quarter was very challenging due to continued weakness in international air freight markets, pressure on yields due to industry overcapacity and customers selecting less expensive and slower-transit services," Chairman, President and CEO Frederick Smith said in a statement.
The Memphis, Tennessee-based FedEx, a Dow component, reported net income of $361 million or $1.13 per share for the third quarter, lower than $521 million or $1.65 per share in the prior-year quarter.
Excluding items, adjusted net income for the quarter was $1.23 per share, compared to $1.55 per share in the year-ago quarter.
On average, 26 analysts polled by Thomson Reuters expected the company to report earnings of $1.38 per share for the quarter. Analysts' estimates typically exclude special items.
Total revenue for the quarter increased 4 percent to $11.01 billion from $10.56 billion in the same quarter last year, and topped twenty-two Wall Street analysts' consensus estimate of $10.86 billion by a whisker.
FedEx Express revenues increased 2 percent to $6.70 billion, FedEx Ground revenues grew 11 percent to $2.75 billion, and FedEx Freight revenues edged up to $1.24 billion from last year's $1.23 billion.
Operating margins for the quarter contracted 230 basis points to 5.4 percent from last year's 7.7 percent.
The company noted that "the quarter's results reflect the decline in profitability at FedEx Express due to the accelerating demand shift toward lower-yielding international services and lower international export yields. The quarter's results were also negatively impacted by the business realignment costs noted earlier and by fewer operating days in each transportation segment."
"In response, beginning April 1, FedEx Express will decrease capacity to and from Asia and will aggressively manage traffic flows to place low yielding traffic in lower-cost networks. We are currently assessing how these actions may allow FedEx Express to retire more of its older, less-efficient aircraft. We remain focused on our strategic cost reduction programs, which are ramping up and on track," Smith added.
Looking ahead to the fourth quarter, FedEx expects earnings in a range of $1.90 to $2.10 per share, while analysts expect the company to report earnings of $2.13 per share.
For fiscal 2013, the company lowered its adjusted earnings guidance to a range of $6.00 to $6.20 per share from the prior forecast of $6.20 to $6.60 per share. Street is currently looking for full-year 2013 earnings of $6.35 per share.
The capital spending forecast for fiscal 2013 was also reduced to $3.6 billion from the $3.9 billion previous forecast.
"In addition to continued profit improvements in the base businesses at FedEx Ground and FedEx Freight, our profit improvement programs are targeting annual profitability improvement at FedEx Express of $1.6 billion by the end of fiscal 2016, from the fiscal year 2013 base business," CFO Alan Graf Jr. noted.
FDX closed Tuesday's regular trading session at $106.46, down $0.94 on a volume of 2.65 million shares. In the past 52-week period, the stock has been trading in a range of $83.80 to $109.66.
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