FedEx Grows Profit but Misses Analyst Forecast, Lowers Outlook

FedEx, UPS, FedEx Ground, FedEx Express, ecommerce fulfillmentFedEx reported $12.3 billion in first-quarter revenue, up 5.1% from fiscal 2015, while income rose 6% to $692 million. But the per-share earnings of $2.42 missed analyst consensus of $2.46 per share, and the company lowered its 2016 outlook to a range of $10.40-$10.90, from the previously announced $10.60-$11.10.

As has been the case with other earnings lately, a weaker global picture and the strong dollar were cited as the primary culprits by FedEx executives.

“FedEx Corp. is performing solidly given somewhat weaker than expected global economic conditions, especially in manufacturing in global trade,” Chairman Fred Smith told analysts.

For the FedEx Ground segment, Q1 revenue was up 29% to $3.83 billion, helped by the acquisition of Genco, while operating income was down 1% to $537 million, due to higher-than-expected costs including insurance and the handling of larger packages. Revenue for FedEx Express was $6.59 billion, down 4% from the previous year, due to lower fuel surcharge revenue and currency impact, while operating income rose 45% to $545 million, helped by an additional operating day in the quarter and lower international expenses due to exchange rates.

Mike Glenn, President and CEO of FedEx Services, said the company has been seeing an increase in oversized packages from ecommerce customers. “We are working with those individual customers that are driving that change, at least the ones that are having the biggest impact and obviously, we always look at pricing opportunities to mitigate that where needed,” Glenn said.

He also said FedEx plans to hire 55,000 seasonal employees to help it meet holiday season demand, the same as in 2014, and peak volume is expected to once again set a record. UPS said Tuesday it plans to hire between 90,000 and 95,000 for peak, the same as last year.

FedEx, often considered an economic bellwether as are other transportation sector companies, is forecasting U.S. GDP growth of 2.5% for 2015 and 2.8% for 2016, led by gains in consumer spending, Glenn said. This is rosier than the Congressional Budget Office, which last month lowered its 2015 GDP growth forecast from 2.9% to 2%.

The dimensional weight changes put into effect in January have had a positive effect, Glenn said, helping boost the per-package yield for FedEx Express by 5.5%.

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