FedEx shares tum­ble due to a weak quar­ter, dis­ap­point­ing out­look


FedEx’s latest quar­terly re­sults missed Wall Street ex­pec­ta­tions, as lower fuel sur­charges and the strong dol­lar cut into rev­enue at its big ex­press-ship­ping busi­ness.

Shares of FedEx Corp. per­cent on Wed­nes­day.

The pack­age- de­liv­ery gi­ant also an­nounced an in­crease in the manda­tory re­tire­ment age for di­rec­tors, from 72 to 75. That would let Chair­man and CEO Fred Smith stay on the board longer — he will turn 71 in Au­gust. The com­pany doesn’t have a max­i­mum age for ex­ec­u­tives, a spokesman said.

FedEx re­ported a loss of US$ 895 mil­lion, or US$ 3.16 per share, in the quar­ter ended May 31, as re­sults were dragged down by a US$2.2 bil­lion charge for a change in ac­count­ing of pen­sion costs.

The Mem­phis, Ten­nessee­based com­pany said it would have earned US$2.66 per share ex­clud­ing the pen­sion change, a write-down of air­craft, le­gal costs tied to set­tle­ment of a law­suit by driv­ers in Cal­i­for­nia, and other non-re­peat­ing items. But that ad­justed profit still missed a forecast of US$2.70 per share from a sur­vey of an­a­lysts by Zacks and US$2.68 per share from a Fac­tSet sur­vey.

Rev­enue was US$12.11 bil­lion, be­low the US$12.39 bil­lion es­ti­mate from Zacks and US$12.30 bil­lion from Fac­tSet.

Cheaper oil meant that the com­pany’s big­gest busi­ness seg­ment, FedEx Ex­press, saved money on fuel, but that was wiped out by less rev­enue from lower fuel sur­charges. Still, the unit’s in­come, ex­clud­ing spe­cial items, rose 12 per­cent thanks to cost-cut­ting.

Lo­gan Purk, an an­a­lyst for Ed­ward Jones, said re­sults were im­prov­ing at the ex­press unit but he was con­cerned about the cost of re­cent ac­qui­si­tions and shrink­ing mar­gins at FedEx’s

fell 3 core ground busi­ness.

“It was a de­cent quar­ter, but ex­pec­ta­tions re­main high,” Purk said in an in­ter­view.

On a con­fer­ence call with an­a­lysts, Smith de­fended the com­pany’s per­for­mance and sug­gested in­vestors were los­ing sight of the big pic­ture.

“The man­age­ment t eam around this ta­ble is very con­fi­dent that we will con­tinue to in­crease mar­gins, cash flows and re­turns,” he said.

An­a­lysts quizzed ex­ec­u­tives about the threat that a cus­tomer could be­come a com­peti­tor by get­ting into the de­liv­ery busi­ness. The Wall Street Jour­nal re­ported that Ama­ Inc. is de­vel­op­ing a sys­tem to use reg­u­lar peo­ple to drop off pack­ages. Oth­ers are look­ing into the idea too.

Mike Glenn, a FedEx ex­ec­u­tive vice pres­i­dent, said chal­lengers would face “a pretty tall hill to climb.” It would take time and money to build a de­liv­ery net­work, and cus­tomers like the se­cu­rity of a uni­formed de­liv­ery per­son, he said.

Wed­nes­day’s re­sults closed out the com­pany’s fis­cal year. For the year end­ing in May 2016, FedEx said it ex­pects ad­justed earn­ings be­tween US$10.60 and US$11.10 per share. The mid­point, US$10.85, is slightly be­low the US$10.89 forecast from an­a­lysts sur­veyed by Fac­tSet.

FedEx said last week that it would take a US$2.2 bil­lion pre­tax charge in the May 31 quar­ter be­cause it was chang­ing pen­sion ac­count­ing to record plan gains and losses in the fourth quar­ter of each fis­cal year in­stead of spread­ing them over many years. The com­pany said the change would make its re­sults eas­ier to un­der­stand.

FedEx shares closed down US$5.40 to US$176.73 af­ter fall­ing as low as US$174.51 dur­ing the day. They have gained 2 per­cent in 2015, match­ing the per­for­mance of the Stan­dard & Poor’s 500 in­dex.

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