Monday, December 14, 2009

FedEx Corp. (NYSE: FDX): Second Quarter Earnings Preview 2010

FedEx Corp. (NYSE: FDX) is scheduled to release financial results for the fiscal second quarter ended November 30 on Thursday, December 17, 2009. Analysts, on average, expect the company to report earnings of $1.05 on revenue of $8.46 billion. In the year ago quarter, the company reported earnings of $1.58 per share on revenue of $9.54 billion.

FedEx Corporation provides transportation, e-commerce, and business services in the United States and internationally. It operates in four segments: FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services.

Shipping firms such as FedEx and rival United Parcel Service (NYSE: UPS) are often considered a bellwether for the U.S. economy because the strength of their businesses serves as a useful gauge of activity in the broader economy.The company was hit hard by the severe global economic recession amid reduced demand for package shipments. In September, the package delivery giant reported that its fiscal first quarter net income slumped 53% to $181 million or $0.58 per share, from $384 million, or $1.23 per share, in the year-ago quarter. Quarterly revenue plunged $8.01 billion from $9.97 billion in the prior year quarter. Analysts, on average, expect the company to report earnings of $0.58 per share on revenue of $8.24 billion.

The management attributed the positive quarterly results to better-than-expected FedEx International Priority volume and strict cost controls. Over the last year, the company cut jobs, slashed salaries, instituted hiring freeze and suspended contributions for employees’ 401(k) retirement accounts in response to the worst recession in decades. The company expects to save about $3 billion by the end of fiscal 2010 in May from cost cuts made since June of 2008.

Early in December, the Memphis, Tennessee-based company boosted its second quarter earnings guidance. The company now expects to report earnings of $1.10 per share for the second quarter, up from its prior estimate in the range of $0.65 to $0.95 per share and down 30% from $1.58 per share a year ago.

The company said that it benefited significantly from rapidly declining fuel prices. "FedEx will exceed previous earnings guidance in the second quarter primarily due to better-than-expected growth in FedEx International Priority and FedEx Ground volumes, coupled with the benefits of our continuing cost control programs," said Alan Graf, FedEx Corp. executive vice president and chief financial officer. He said further that year-over-year growth in the company's U.S. overnight express and FedEx International Priority services increased each month during the quarter, aided by inventory restocking and the company's sales efforts. He added that demand for the company's international services has improved significantly since the first quarter, particularly in Asia and Latin America.

FedEx also said that its capital spending forecast remains $2.6 billion, and added that FedEx Express will increase shipping rates by an average of 5.9% for U.S. domestic and U.S. export services, effective January 4, 2010.

The company also said it will raise shipping rates for its Ground and Home Delivery units by an average of 4.9 percent in 2010 — 1 percentage point less than this year's rate hike.
FedEx announced in September it will increase shipping rates for Express packages shipped within or from the U.S. by an average of 5.9 percent in 2010, also 1 percentage point lower than FedEx's rate increase this year.

Fedex is also upbeat on holiday shipping despite recession's hangover. It expects to ship more than 13 million packages on Dec. 14, the day it anticipates will be its busiest of the year. If the prediction holds, it would result in an 8% increase compared its busiest day of 2008, when it shipped 12 million parcels.

FedEx is well positioned to benefit from faster-than-expected economic recovery. It's margins are expected to improve economic health is a key determinant of package volumes. Last month, the Commerce Department reported that the US economy grew at a 2.8 percent annual rate. It was the fastest pace since the third quarter of 2007. According to the International Air Transport Association, global air-freight volumes were down 0.5% in October, a significant improvement from the start of this year when they dropped more than 20% in some months.

In terms of stock performance, FedEx shares are up 41% since the beginning of the year. Shares of the company rose $2.62 or 2.98% to close at $90.56 on Monday.

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