FedEx Corp. on Wednesday trimmed its earnings outlook for its fiscal year as the package-delivery giant sees weak demand in its freight segment and higher costs in its ground segment.
The downbeat guidance followed weaker-than-expected profit for its August quarter.
FedEx said it is now expecting earnings of $10.40 to $10.90 for the year ending next May, down from its previous guidance of $10.60 to $11.10 a share.
The shipper said it is benefiting from its restructuring plans, but the company is seeing weak less-than-truckload demand at its freight segment, high self-insurance reserves, and higher operating costs at FedEx Ground.
FedEx "is performing solidly given weaker-than-expected economic conditions, especially in manufacturing and global trade," Chief Executive Frederick W. Smith said in a news release.
FedEx said it is seeing improvements from its cost-cutting plans, but it is experiencing weaker less-than-truckload demand and higher-than-expected self-insurance reserves, on top of higher operating costs at FedEx Ground.
Shares of FedEx, which rose 2.5% Tuesday, fell 3.5% to $148.65 in premarket trading. Through Tuesday's close, the stock is down 0.4% over the past 12 months.
FedEx has been pouring money into its ground segment as it tries to keep up with the boom in online shopping. Founded as an air express company, FedEx is relatively new to ground delivery compared with century-old rival United Parcel Service Inc. FedEx only added its home delivery service in 2000 and has been rapidly expanding its ground network to accommodate the big increase in e-commerce packages.
On Tuesday, FedEx announced it would raise shipping rates at its FedEx Express, FedEx Ground and FedEx Freight shipments starting Jan. 4. In addition, FedEx said it would increase the surcharges for shipments that exceed the published maximum dimensions in the FedEx Ground network starting Nov. 2.
The move comes as FedEx heads into its crucial holiday shipping season.
In the latest quarter, FedEx said results benefited from one additional operating day at each of its transportation segments, partially offset by higher incentive compensation and a slight negative impact from fuel.
Overall, for the first quarter ended Aug. 31, FedEx posted a profit of $692 million, or $2.42 a share, up from $653 million, or $2.26 a share, in the year-earlier period.
Profit in the prior-year period included a benefit from its recent pension accounting change.
Revenue rose to $12.3 billion from $11.7 billion a year ago.
Analysts polled by Thomson Reuters recently expected per-share earnings of $2.46 on revenue of $12.3 billion.
At its ground segment, revenue jumped 29% to $3.83 billion, helped by its acquisition of logistics provider GENCO Distribution System Inc. and a 4% increase in volume due to continued growth in home delivery.
At the company's biggest segment--express--revenue fell 4% to $6.59 billion. A 1% increase in U.S. domestic package volume and improved base rates were offset by lower fuel surcharges and currency impacts.
FedEx said its freight segment's revenue was essentially flat at $1.61 billion, as shipments for the less-than-truckload operation edged down 1% amid weak industry demand.