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FedEx misses estimates as costs rise at ground-shipping unit

Wednesday, December 21, 2016 - 07:48

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FedEx Corp's fiscal second-quarter profit fell short of analysts' estimates as spending to improve its growing ground-shipping unit dulled the benefit of increased online shopping for the holidays.

[DALLAS] FedEx Corp's fiscal second-quarter profit fell short of analysts' estimates as spending to improve its growing ground-shipping unit dulled the benefit of increased online shopping for the holidays.

Operating income at the ground unit fell 12 per cent as investment to expand capacity climbed, the Memphis, Tennessee-based company said in a statement Tuesday. The expenditures will help FedEx improve service and boost returns in the long term, chief financial officer Alan Graf said in the statement.

The package-delivery company is spending about US$2 billion this year and possibly that much next fiscal year as it expands sorting hubs and distribution centers and increases automation at FedEx Ground to handle growing e-commerce shipments. Adjusted earnings were US$2.80 a share for the quarter ended Nov 30, trailing the US$2.91 average of analyst estimates compiled by Bloomberg.

"The company is facing some steep expectations," said Logan Purk, an Edward D Jones analyst. "As a whole, operationally, it actually was a pretty good quarter."

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The shares fell 3.2 per cent to US$192.47 at 4:45pm in New York after regular trading. FedEx had gained 33 per cent this year through Tuesday's close.

Sales climbed to US$14.9 billion in the quarter, meeting analysts' projections. FedEx reiterated its outlook for a full-year profit of US$11.85 to US$12.35 a share, excluding pension accounting adjustments and costs related to the integration and restructuring of Dutch shipper TNT Express.

Revenue rose at FedEx Express, the company's cargo airline, and the ground unit as they moved more packages and earned more per shipment on higher base rates, the company said.

FedEx has said it expected to handle about 357.5 million packages this holiday season, 10 per cent more than last year, on an expected jump in online shopping. The company hired more than 50,000 temporary workers for the peak shipping period, less than in 2015, as it boosted automation.

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