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FedEx Keeps Full-Year Forecast Amid Economic Growth Concerns

From staff and wire reports

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FedEx Custom Critical driver Danny Wells locks up his truck after passing a 3-day inspection on his truck on Wednesday in Green. (Phil Masturzo/Akron Beacon Journal)

FedEx Corp., operator of the world’s largest cargo airline, maintained its full-year profit forecast in a report Wednesday amid increasing concern that U.S. economic growth could slow.

The shares rose, as broader market indexes declined, after Memphis, Tenn.-based FedEx re-affirmed its fiscal 2013 earnings outlook of $6.20 to $6.60 a share, excluding costs associated with a voluntary buyout program.

FedEx, an economic bellwether because it moves goods as varied as pharmaceuticals, financial documents and electronics, beat fiscal second-quarter sales estimates while struggling with falling profit at its express division. That drop is caused in part by customers’ long-term shift to cheaper shipping options.

“It was a pretty impressive quarter, especially given the economy,” said Logan Purk, an Edward Jones & Co. analyst in St. Louis, who recommends buying the shares. “Something else the market likes is that in this sluggish environment they came out and maintained their guidance” for full-year profit.

FedEx shares increased 0.9 percent to $93.20 while United Parcel Service Inc., the world’s largest package-delivery company, gained 0.7 percent to $75.61.

The company has local operations in Green with the headquarters of FedEx Custom Critical, which specializes in delivering urgent shipments. The company’s 625 employees handle a variety of customer needs, from using temperature-controlled vehicles to transport pharmaceuticals to delivering video games to stores for major releases.

Employment is up 75 people since December 2010, the company said.

The company has actually been in the Akron area since the 1940s, when it was known as Roberts Cartage. It became Roberts Express in the early 1980s before being purchased by FedEx in 1998, with its official name change to FedEx Custom Critical in 2000. The company said it is currently hiring sales professionals in its truckload brokerage division.

Overall, earnings will fall to $1.25 to $1.45 a share in the third quarter ending in February, FedEx also said. The range’s top end matched the average analyst estimate.

FedEx reiterated its forecast for 1.9 percent U.S. GDP growth in calendar 2013, and lowered the global outlook to 2.5 percent. The company reduced to 2.4 percent its outlook for U.S. industrial production growth on Superstorm Sandy, and forecast 2.5 percent worldwide.

“I just want to emphasize that calendar year 2013 outlook could swing either direction depending upon policy outcomes, especially with the fiscal cliff issues in the U.S. and certainly issues in Europe,” Mike Glenn, chief executive officer of FedEx Services, said on a conference call with analysts and investors.

FedEx in October announced a $1.7 billion effort to reduce costs and improve earnings. About $1.55 billion of the work will involve FedEx Express. The company will record a charge of $550 million to $650 million, or $1.09 to $1.29 a share, in the fiscal fourth quarter related to the voluntary buyout program, expected to be accepted by “thousands” of workers.

“We expect to begin realizing the benefits of these programs in fiscal year 2014 and anticipate these savings will be substantially realized by the end of fiscal 2015,” Graf said on the call.

Net income in the second quarter ended Nov. 30 fell 12 percent to $438 million, or $1.39 a share, from $497 million, or $1.57, a year earlier, FedEx said. The profit, which included 11 cents in costs related to Sandy, trailed the $1.41 average analyst estimate compiled by Bloomberg News.

Sales rose 4.9 percent to $11.1 billion, topping the $10.8 billion average estimate. Operating income for FedEx Express, the largest segment, fell 33 percent to $230 million from $342 million, while revenue increased 4.2 percent to $6.86 billion.

The 3 percent gain in international priority shipments, FedEx’s most expensive offering, was in line with one projection, showing that growth in that segment remains anemic.

“It’s consistent with what we thought given the economy,” Art Hatfield, an analyst at Raymond James & Associates Inc. in Memphis, Tenn., said. He rates the shares outperform.

FedEx also said it agreed to buy four additional Boeing Co. 767-300 freighters, bringing to 50 the number it has on order. Deliveries are to begin in fiscal 2014. The shipping company also postponed deliveries of two Boeing 777 freighters to fiscal 2016 from fiscal 2015 “in order to better match capacity timing to global demand.”

FedEx said it handled a record 19.8 million packages on Dec. 17, surpassing the 19 million it had forecast. The company expects volume to be up more than 13 percent from last year, as several big customers are seeing record sales, said Dave Rebholz of FedEx Ground.