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E-commerce growth not enough to help FedEx

FedEx on Wednesday reported average daily package volume growth of 10% during the third quarter at its ground division, but it wasn’t enough to offset weakness elsewhere and profits were well short of analysts’ estimates.

The company’s third quarter ended February 28 and included the holiday season so the ground volume growth is noteworthy and parallels the double digit growth seen in e-commerce. However, weakness in air freight and express caused the company to report an adjusted earnings per share figure of $1.23 that was 15 cents below analysts’ consensus forecast.

"The third quarter was very challenging due to continued weakness in international air freight markets, pressure on yields due to industry overcapacity and customers selecting less expensive and slower-transit services," said FedEx chairman, president and CEO Fred Smith. "In response, beginning April 1, FedEx Express will decrease capacity to and from Asia and will aggressively manage traffic flows to place low yielding traffic in lower-cost networks. We are currently assessing how these actions may allow FedEx Express to retire more of its older, less-efficient aircraft. We remain focused on our strategic cost reduction programs, which are ramping up and on track."

Total company third quarter revenues increased 4% to $11 billion, but net income fell 31% to $361 million from $521 million. Looking ahead, FedEx projects fourth quarter earnings to be an adjusted $1.90 to $2.10 per share and adjusted full year profits of $6 to $6.20, excluding charges related to the company’s business realignment program that involves early retirement offers for thousands of employees.

"Our lower-than-expected results for the quarter and reduced full-year earnings outlook were driven by third quarter international revenues declining approximately $100 million versus our guidance primarily due to accelerating customer preference for lower-yielding international services, lower rate per pound and weight per shipment," said FedEx CFO Alan Graf Jr. "We expect these international revenue trends to continue. We have other actions under way beyond those already included in our profit improvement program. Some of these additional actions may involve temporarily or permanently grounding aircraft, which could result in asset impairment or other charges in future periods."

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