FedEx reports quarterly income dip, forecasts 'limited earnings growth'

American express delivery giant, FedEx, whose results are widely considered to be a leading indicator for the US economy, on account of the company's consistent profitability, has posted a 6% drop in net income for the fiscal third quarter, ended 29 Feb. The company warned that rising fuel prices and "a weak US economy" would very likely result in "limited earnings growth," for the current quarter as well as for the company's next fiscal year, starting 1 June.

Net income for Q3 came in at $393 million, compared to $420 million in the year-ago period.

The quarterly result, coupled with a dim outlook, only adds to a growing consensus that the US economy has slowed down significantly.

"FedEx faces a challenging economic environment that includes persistently high oil prices, sluggish US growth and continued concerns in the credit markets," chairman, president and CEO Frederick Smith said.

Though overall revenue came in higher by 10%, at $9.44 billion, expenses rose 11% to $8.8 billion, producing a flat year-over-year operating income of $641 million. Significantly, fuel costs jumped 42% to $1.18 billion.

The FedEx Express airline division reported an operating income of $425 million, up 8% from $395 million in the year-ago quarter, on an 11% increase in revenue to $6.13 billion.

Express operating margin of 6.9% slipped 0.3 points. "Operating income and margin were negatively impacted by continued softness in the US economy. . .and the ongoing cost of investments in the company's China domestic express service," FedEx said.

International priority package revenue grew 18% as per-package revenue climbed 10% to $57.85 "primarily due to higher fuel surcharges and favorable exchange rates," the company said. Daily IP package volume rose 6% "led by increases in volume originating in Latin America, the US and Asia." US domestic package volume declined 2% but revenue per package rose 6% to $16.77 owing to increased fuel surcharges. International airfreight per-freight-lb. revenue was up 5% to 89 cents.

According to executive VP and CFO, Alan Graf, FedEx is girding for "limited" growth for the foreseeable future. "We are scrutinizing all expenses and investments to realign them with the current environment," he said.