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Wednesday, June 18, 2008

Bloomberg.com: U.S.

June 18 (Bloomberg) -- FedEx Corp., the second-largest U.S. package-shipping company, reported a fourth-quarter loss and forecast profit that fell short of analysts' estimates, sending the shares down as much as 4.7 percent.

The company had a loss of $241 million on rising fuel costs and a writedown on the FedEx Kinko's unit, and predicted a ``very difficult'' environment.

FedEx has been unable to raise surcharges fast enough to keep pace with fuel costs that have almost doubled the past year, while a cooling U.S. economy is curbing sales of the company's more expensive shipping options. The results at FedEx, often considered a proxy for the U.S. economy, suggest fuel expenses and slowing demand will continue to erode growth prospects in industries ranging from shipping to airlines.

The coming year will be ``very difficult due to the weak U.S. economy and extremely high fuel prices,'' FedEx Chief Financial Officer Alan Graf said in a statement.

The net loss was 78 cents a share, compared with a year- earlier profit of $610 million, or $1.96, the Memphis, Tennessee-based company said today in the statement. Revenue rose 7.8 percent, to $9.87 billion.

Excluding the $891 million charge for the Kinko's unit, which is being renamed FedEx Office, the company's profit was $1.45 a share, which missed the average $1.47 estimate of 11 analysts surveyed by Bloomberg.

`Uncertain Outlook'

FedEx fell $2.63, or 3.1 percent, to $81.70 at 10:30 a.m. in the New York Stock Exchange composite trading, after dropping to $80.38.

FedEx said fiscal first-quarter earnings would be 80 cents to $1, lower than the $1.34 average estimate of nine analysts surveyed by Bloomberg. The company said earnings are ``difficult to predict'' because of volatile fuel prices and an ``uncertain economic outlook.''

For the full-year, FedEx said profit will be $4.75 to $5.25 a share, compared with an average estimate of $6.01 by 12 analysts in a Bloomberg survey.

``FedEx is facing significant earnings headwinds from higher fuel prices, weak demand trends in domestic air express, and customer trade down in services,'' Thomas Wadewitz, an analyst at JPMorgan Chase & Co., wrote in a June 13 note to clients. Those pressures will continue ``for at least a few more quarters,'' he said.

FedEx and UPS typically have a two-month lag in recovering fuel expenses through surcharges. Crude oil, from which gasoline and jet fuel are derived, averaged $115 a barrel in the three months ended May 31, up from $63 in the same period a year earlier.

Cheaper Options

FedEx's fuel bill for the fourth quarter surged 54 percent, to $1.39 billion.

The surcharges that FedEx has been able to add so far have hurt demand for express shipments, as some customers downgrade to cheaper options such as two-day shipping or freight. FedEx's fuel surcharge on express packages is 28 percent, up from 18.5 percent in March, according to its Web site.

FedEx's results underscore concerns among economists that higher energy and raw-materials expenses will squeeze profits in more industries as consumers resist price increases. Prices paid to U.S. producers rose more than economists forecast in May as fuel and food costs climbed, a report yesterday from the Labor Department showed.

``Businesses are holding back on passing along the higher costs as demand is slowing,'' said Rudy Narvas, senior economist at 4Cast Inc. in New York. ``Oil is putting pressure on prices, but the pass-through to consumers is slow.''

Economic Forecast

Economists have cut their U.S. growth forecasts for later this year and next, projecting no quarter will exceed an expansion rate of 2 percent, as job losses, food and fuel prices and tougher lending rules hurt consumers.

Growth for all of 2008 will be 1.5 percent, the slowest since 2001, with next year recording a 1.9 percent gain, according to the median forecast of economists surveyed by Bloomberg from June 2 to June 11.

``We continue to see some very uninspiring economic figures from the U.S. that point to some very weak growth,'' said Nicolas Lopez, head of analysis at Mercados & Gestion de Valores in Madrid. He spoke in Spanish in an interview with Bloomberg Television yesterday. ``It's going to continue for some time.''

UPS lowered its full-year profit forecast in April after reporting only its eighth drop in domestic deliveries in its 101-year history. The company's volumes almost always match or exceed U.S. gross domestic product.

UPS Chief Financial Officer Kurt Kuehn said there are ``no signs of economic strengthening'' for the quarter ending June 30.

FedEx controls about 31 percent of the U.S. package market, behind only UPS's 51 percent share, according to SJ Consulting Group Inc.

To contact the reporter on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net.

Last Updated: June 18, 2008 10:38 EDT
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