FedEx profit drops less than investors feared

MEMPHIS, Tenn., Wed Dec 19, 2012 — FedEx Corp. profit fell 11.9 percent in the second quarter, less than investors had feared, as the No. 2 U.S. package delivery company struggled to improve demand at its air freight business.

The company reported fiscal second-quarter earnings of $438 million, or $1.39 per share, on Wednesday, compared with $497 million, or $1.57 per share, a year earlier.

Disruptions relating to Superstorm Sandy — which walloped the East Coast late in October and killed more than 130 people — pulled earnings down by about 11 cents per share.

Factoring out those charges, profit was $1.50 per share, more than the $1.41 analysts had forecast, according to Thomson Reuters I/B/E/S.

In premarket trading, the company’s shares were up 2 percent.

Memphis, Tennessee-based FedEx has been trying to improve profit at its air express business, which has seen demand fall as shippers turn to less costly ways of shipping goods. Operating profit at that unit, which accounts for more than half FedEx’s sales, fell 33 percent in the quarter.

“Persistent weakness in the global economy and increased demand for lower-yielding international services limited profits at FedEx Express,” said CEO Fred Smith, referring to the company’s air freight operation.

Smith laid out plans in October to cut costs at the unit.

Revenue grew 4.7 percent to $11.1 billion from $10.6 billion a year earlier.

The company held steady its profit forecast for 2013 — it expects to earn $6.20 per share to $6.60 per share for the fiscal year through May. In September, FedEx had cut that forecast by about 10 percent.

FedEx, which competes with larger rival United Parcel Service Inc., said shipments relating to the holiday shopping season — a key period for U.S. retailers — were on track to set a record.

FedEx shares have gained about 9 percent over the past 12 months, outperforming the 5-percent rise in shares of rival UPS. Still, both companies have underperformed the broader U.S. market; the Standard & Poor’s 500 index .SPX has surged 19 percent over the same period.

TNT Express not expecting bid from FedEx-source

NEW YORK – Dutch delivery firm TNT Express is not expecting U.S. rival FedEx to trump a 4.9 billion euros ($6.5 billion) takeover bid from United Parcel Services, a source close to TNT said on Thursday.

TNT last week rejected a 9 euros per share cash offer from UPS, the world’s largest package delivery company, but is still in talks with its U.S. suitor.

TNT’s shares jumped to an all-time high of 10.24 euros this week partly on hopes that FedEx, which has flirted with the idea of buying TNT for years, might trigger a bidding war.

“The last discussion we had with them (FedEx) didn’t give us the impression that they were ready to make a move”, the source said, adding he had sounded out FedEx’s intentions very recently.

While FedEx sees strategic value in combining with TNT, it feels the price has become too expensive to do a deal at this point, another source close to the situation said.

The sources asked not to be identified because they were not authorized to speak with the media.

FedEx and TNT declined to comment.

Some analysts said FedEx could be better off scooping up assets that competition regulators might require UPS to sell if it succeeds in winning over its Dutch target.

Sources close to the talks between UPS and TNT said a combined firm would need to make significant asset sales in Europe – the Netherlands, Britain and Germany in particular – to win regulatory approval.

“You could see some assets that are displaced or some market share opportunities that come from the deal as well that could benefit FedEx,” said Benjamin Hartford, senior research associate at Robert W. Baird.

FedEx sees record holiday volume, adding workers

MEMPHIS, Tenn. ― FedEx Corp. expects a 12 percent jump in holiday shipments this year and will add about 20,000 workers to handle the record volume driven by online shopping.

The surge is driven by a combination of gradual economic improvement and ever-increasing Internet sales, analysts said.

“This is slightly better than we anticipated,” and suggests some restocking by retailers as well as more online shopping by consumers, said Dahlman Rose & Co. analyst Jason Seidl.

“The economy right now is not as bad as some people had feared, though I wouldn’t say it’s going great guns, and this is also an indication that a lot of retailers kept inventories low and the consumer is not totally in the dumps,” he added.

FedEx shares were up 3.5 percent on Monday after the company detailed its holiday expectations.

Retailers and manufacturers have been keeping inventories lean because of low consumer confidence. Demand that develops closer to the holidays this year now will most likely be delivered by FedEx and United Parcel Service, which offer fast shipment options.

FedEx said it will add about 20,000 seasonal workers to help handle the volume surge, up from 17,000 last year.

“Peak season” shipping, in which goods are moved here from Asia in the fall for the holidays, was dulled this year because companies are not keeping excess goods on their shelves due to the sour mood of the consumer.

U.S. gross domestic product grew at an annual rate of 1.3 percent in the second quarter, underscoring the tepid pace of economic recovery.

FedEx’s forecast “is a combination of maybe the economy is a little better than we thought, and that this really speaks to the growth of on-line shopping,” said BB&T Capital Markets analyst Kevin Sterling.

“Inventories are extremely lean, so any pulse of demand has got to come by airfreight, and that’s right in the wheelhouse for FedEx and UPS,” said Sterling, based in Richmond, Va.

And e-commerce is showing no signs of abating, which plays into the hands of FedEx and UPS, the two largest package delivery companies, which move goods faster than ship or rail.

“The buzzword this year is M-commerce, or mobile commerce,” in which convenience-seeking consumers order products via their mobile phones, further boosting online sales, Sterling added.

FedEx said it delivers 61 percent of its packages in two days or less, for example.

FedEx expects to deliver more than 260 million packages globally between Thanksgiving and Christmas, up 12 percent from a year earlier.

Apparel, consumer electronics, luxury goods, books and other items from big Internet retailers will account for a large portion of holiday volume, the company said on Monday.