FedEx lowers fiscal 2016 income outlook

DALLAS (AP) – FedEx reported disappointing results for its latest quarter, and the delivery giant cut its full-year profit forecast on weaker demand for freight services and higher costs in its ground division.

The company also said it plans to hire more than 55,000 seasonal workers for the holidays, an increase of at least 5,000 over last year’s plan. Its shares fell nearly 3 percent. FedEx Corp. said that it expects to earn between $10.40 and $10.90 for the fiscal year that ends next May, down 20 cents from an earlier prediction. Analysts expected $10.84, according to a survey by FactSet.

The reduced outlook comes despite cost-cutting moves, growth in online commerce, and upcoming price hikes. Rates for express, ground and freight shipments will rise by average 4.9 percent on Jan. 4, and surcharges for oversized packages will go up in November, before the peak holiday season.

Chairman and CEO Fred Smith said the Memphis, Tennessee-based company was “performing solidly given weaker-than-expected economic conditions, especially in manufacturing and global trade.”

Smith blamed the earnings miss and the lower profit forecast on FedEx raising its set-aside for self-insurance as its drivers cover more miles in more trucks.

“The whole thing about the quarter is one issue; it’s a self-insurance reserve,” he said on a conference call with analysts. “All the rest of the stuff is just noise and various issues inside the operating company.”

Analysts pointed out that the selfinsurance reserve has hurt results two straight quarters. FedEx did not provide a figure for the higher insurance reserve, but a spokesman said it was included in a line for “other” costs that totaled $453 million in the quarter, an increase of $201 million from a year earlier.

Smith also complained that FedEx didn’t set earnings targets; analysts did. The company could be paying the price for being a longtime Wall Street favorite.

“When you become beloved by the Street, the downside is it’s harder and harder to meet those elevated expectations,” said Logan Purk, an analyst with Edward Jones. “That’s part of the reason that FedEx has missed (earnings forecasts) the last couple quarters.”