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VOL. 130 | NO. 117 | Wednesday, June 17, 2015

FedEx Earnings Miss Wall Street Expectations

By Amos Maki

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FedEx Corp., hit by unfavorable currency exchange rates, lower fuel surcharges and special charges, reported lower-than-expected revenue and profits for the fiscal fourth quarter.

FedEx Corp. reported lower-than-expected revenue and profits for the fourth quarter of the fiscal year.

(Daily News File/Andrew J. Breig)

The Memphis-based company, which warned in March that currency and fuel issues could dampen results, reported a loss of $895 million, or $3.16 a share, for the quarter that ended May 31. That’s compared to a profit of $780 million, or $2.62 a share, over the same period last year.

For the full fiscal year, FedEx reported revenue of $47.5 billion, or $3.65 a share, compared to $45.6 billion, or $7.48 per share, in fiscal year 2014.

Shares of FedEx fell more than 2.5 percent in morning trading after the Wednesday, June 17, earnings report. They began the day up 5 percent in 2015, compared with a 2 percent gain in the Standard & Poor's 500 index.

The company’s fourth-quarter results were adversely impacted by several large special charges.

On June 9, FedEx announced it was changing its pension accounting methods, a move that required a $2.2 billion charge. In addition, FedEx announced it would take a $197 million charge against the quarter’s earnings as part of a proposed $228 million settlement of a lawsuit over how the FedEx Ground unit classified employees as contractors.

The company said earnings would have been a $2.66 a share for the quarter and $8.95 a share for the year without adjustments for the pension accounting change, court settlement and accelerated aircraft retirements. That still missed a forecast of $2.70 per share from a survey of analysts by Zacks and $2.68 per share from a FactSet survey.

FedEx reported fourth-quarter revenue of $12.1 billion, up 2.5 percent from the same period last year but below a $12.4 billion estimate from Zacks and $12.3 billion from FactSet.

During a conference call after the earnings announcement, FedEx chairman, president and chief executive officer Fred Smith said fiscal 2015 was a “transformative” year for FedEx and defended the company's performance, saying long-term plans will lead to growth.

"The management team around this table is very confident that we will continue to increase margins, cash flows and returns," Smith said.

Revenue at FedEx Express, the company’s largest unit, fell 4.3 percent to $6.7 billion, a result impacted by lower fuel surcharges and poorer currency exchange rates that offset a 2 percent increase in package volume.

FedEx Ground posted large gains during the quarter, reporting revenue of nearly $3.6 billion, up 19 percent from $3 billion over the same period last year. The company said average daily volume at Ground grew 5 percent in the quarter, fueled mainly by growth in residential deliveries.

FedEx Freight reported $1.57 billion in revenue in the quarter, up 1 percent from $1.55 billion a year ago.

Looking ahead, FedEx projected fiscal 2016 earnings to be $10.60 to $11.10 per diluted share, driven mainly by improved pricing and the company’s ongoing profit improvement plan. The midpoint, $10.85, is slightly below a $10.89 forecast from analysts surveyed by FactSet.

“We expect strong earnings growth in fiscal 2016 as we continue to focus on improving performance and successfully executing our profit improvement initiatives,” said FedEx executive vice president and chief financial officer Alan Graf.

During the current fiscal year FedEx is expected to finalize a nearly $5 billion takeover of the Dutch logistics and delivery firm TNT Express, the largest deal in FedEx’s 42-year history. If the deal is approved by regulators, the acquisition would make FedEx the third-largest package delivery and logistics firm in Europe.

“Significant acquisitions announced in the year promise to strengthen our portfolio of services and change what’s possible for customers,” Smith said. “I am very proud of the FedEx team for its accomplishments and look forward to a successful fiscal 2016.”

Smith, who will turn 71 in August, will be around to see how the acquisition pans out.

FedEx said members of its board of directors approved a change to increase the mandatory retirement age for directors from age 72 to age 75, effective immediately.

“This change is consistent with the market trend of increasing the mandatory retirement age for board members,” said David P. Steiner, FedEx’s lead independent director.

The Associated Press contributed to this report.

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