FedEx hurt by economy, fuel prices

FedEx Corp. reported a 6% drop in fiscal third-quarter earnings Thursday, saying a slow economy and high fuel prices are expected to continue cutting into profit.

The Memphis, Tenn.-based package delivery company predicted lower earnings in its current quarter than a year earlier, as well as limited earnings growth for its next fiscal year.

“As we survey the current economic landscape, we expect limited earnings growth in [2009], given the current outlook for macroeconomic conditions and fuel prices,” Chief Executive Frederick W. Smith said.

“There is clearly stress in the housing and financial sectors, and they create a drag on the overall U.S. economy, as well as the fuel prices,” Smith said, also noting an apparent softening in the labor market. “In calendar year 2008, we expect U.S. [gross domestic product] to grow more slowly than in 2007.”

FedEx, often seen as a bellwether for the U.S. economy, expects the international economy “will continue to expand overall, albeit at a slower rate,” Smith said. “And this will be fueled by the emerging markets.”

FedEx earned $393 million, or $1.26 a share, in the three months ended Feb. 29, compared with $420 million, or $1.35, a year earlier, when earnings got a benefit of 8 cents a share from a tax rate adjustment. Revenue rose 10% to $9.44 billion.

Analysts at Thomson Financial expected earnings of $1.22 a share on sales of $9.11 billion.

FedEx predicted fiscal fourth-quarter earnings of $1.60 to $1.80 a share, compared with $1.96 last year. Analysts were looking for earnings of $1.95 a share. That outlook “assumes no additional increases to current fuel prices and no further weakening in the economy,” the report said.

FedEx shares rose 79 cents to $87.02.