FedEx’s earnings may not meet goal

FedEx Corp. reported a 2% drop in fiscal third-quarter earnings Wednesday, blaming the decline largely on an economic slowdown that tested the company’s ability to quickly adjust costs.

The shipping company said it also would have to struggle to keep up with a long-range goal of 10% to 15% growth a year in per-share earnings.

But FedEx executives expressed confidence the economy would improve and said the company was well-positioned to take advantage of it.

For the quarter ended Feb. 28, earnings slipped to $420 million, or $1.35 a share, from $428 million, or $1.38, a year earlier.

FedEx said expenses for dealing with bad winter weather cut into profit by 6 cents a share, but that was offset by a gain of 8 cents a share related to a lower tax rate.

Alan Graf, the company’s chief financial officer, said revenue growth was less than expected because of the slowing economy, primarily at the FedEx Express and FedEx Freight divisions.

“We think we’re in a little bit of a soft patch at the moment,” Graf said. “As we see revenue slowing, we’re simply unable to adjust our cost structure quickly enough during a quarter to make up for the lost revenue, and that had a negative impact on us.”

But Dan Ortwerth, an analyst with Edward Jones & Co., said FedEx’s focus on a flexible cost structure and global expansion helped.

“You’re going to get hit, but they could have gotten hit a lot worse,” Ortwerth said. “I think that shows they really have built a smart structure.”

Fuel costs also cut into earnings, FedEx said. Customers pay a surcharge to offset rising fuel costs, but there can be a time lag in adjusting those charges to keep up with fuel prices.

Overall, FedEx revenue grew 7% to $8.59 billion from $8 billion a year earlier.

On average, analysts surveyed by Thomson Financial had expected the company to earn $1.33 a share on sales of $8.7 billion. The estimates typically exclude one-time items.

Graf warned that a continued sluggish economy could affect earnings per share.

“We’re going to have a very good year, but it may not be to the 10% to 15% [earnings-per-share] growth rate that we have as our long-term objective,” Graf said.

Shares of FedEx fell $1.30 to $110.99.