FedEx Corp. reported third quarter earnings that missed analysts’ expectations on continued weakness in international air freight markets and customers that chose less expensive and slower shipping services.
The Memphis-based shipping company said net income fell to $361 million, or $1.13 per share, in the three months ended Feb. 28, from $521 million, or $1.65 per share, a year earlier.
Excluding costs tied to the company’s voluntary buyout program, FedEx said it would have earned $1.23 per share, compared to $1.55 per share, during the same three-month year-earlier period. Revenue gained 4 percent to $11 billion, from $10.56 billion a year earlier.
Analysts were expecting earnings of $1.38 per share and revenue of $10.9 billion, according to FactSet.
“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,” said Frederick W. Smith, chairman, president and CEO of FedEx.
Smith also said the world’s second-biggest package delivery company will cut capacity to Asia and route less profitable shipments into “lower-cost networks.” Those cuts may allow the package-delivery company to retire more of its older and less-efficient aircraft, he said.
FedEx is in the midst of restructuring to cut annual costs $1.7 billion by 2016 with buyouts that will dramatically reduce its workforce by at least 10 percent by May 2014. The restructuring is expected to compensate for consumers that have opted for cheaper and slower shipping services. FedEx is considered a global economic bellwether because its business spans the globe and ships goods in varied industries.
In early February, a number of FedEx officers and managing directors accepted voluntary buyouts. Thousands more were notified of their eligibility on Feb. 15, according to Alan B. Graf Jr., executive vice president and chief financial officer of FedEx.
“This program is one of the first steps in a process that will help FedEx Express achieve necessary cost structure reductions and improved efficiency,” he said.
The company also cut its 2013 earnings forecast. It expects adjusted earnings of between 94 cents to $1.34 per share in its fourth quarter and $6 and $6.20 per share for the year. That’s below analysts’ forecasts of $2.12 and $6.35 per share, respectively. The company’s fiscal year ends in May.
Sterne Agee analyst Jeff Kauffman had predicted a “lackluster number” for the third quarter, but the shipping giant still missed his $1.38 per share estimate by 25 cents per share.
Still, Kauffman said earnings this quarter “won’t matter as much to investors given the transition period that 2013 represents,” according to a preview note sent to investors.
Kauffman said investors should keep a careful eye on FedEx’s plan to cut costs by $1.7 billion by restructuring because the outcome “could surprise either way.”
“… We sense improved optimism among investors, given the improved global growth outlook, so long as the restructuring is moving forward,” Kauffman said in his preview note.
The Associated Press contributed to this report.