FedEx Corp on Tuesday reported lower profit as its ground-shipping unit struggled with higher costs and cut its forecast for full-year earnings.
“Our third-quarter financial results were below our expectations and we are focused on initiatives to improve our performance,” chairman and chief executive officer Fred Smith said in a statement.
Investments in innovation, infrastructure and automation would help boost earnings in the long run, he said.
The company’s ground-shipping business took in 9 percent more revenue than a year earlier, but operating income fell by 6 percent due to higher costs for running six days a week year-round and buying transportation capacity. Until January, the company ran six days a week only around the peak holiday shipping season.
Daniel Sherman, an analyst with Edward Jones Investments, said the two items that stood out in the quarter were lower profit in FedEx’s ground segment and weak revenue in its key express unit due to sluggish economic conditions in Europe and changes in the mix of goods shipped in the US.
“It has more residential [deliveries] in it, they’re going shorter distances, and they are lighter-weight packages,” Sherman said in an interview.
FedEx is making major investments — technology upgrades, new hubs in Memphis, Tennessee, and Indianapolis, and integrating the Dutch delivery firm TNT Express into FedEx, Sherman said.
The acquisition of TNT in 2016 has been plagued by high integration costs and a damaging cyberattack.
Sherman said he believes that the deal will pay off. “It’s just going to take a while.”
Memphis-based FedEx said it earned US$739 million in its fiscal third quarter, which ended last month, down from US$2.07 billion a year earlier, when profit was helped by a one-time gain in deferred tax liability from tax cuts.
The adjusted profit was US$3.03 per share. Wall Street was expecting US$3.08 a share, according to FactSet Research Systems Inc.
Revenue rose 3 percent to US$17.01 billion.
FedEx cut its full-year earnings forecast for a second time, to between US$11.95 and US$13.10 per share, down from US$12.65 to US$13.40 per share.
The company originally predicted earnings between US$15.85 and US$16.45 per share for the fiscal year that ends in May.
Shares of FedEx dipped US$0.99 on Tuesday to close at US$181.41 before the release of the earnings report. They dropped US$10.31, or 5.7 percent, to US$171.10 in extended trading.
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