FedEx does not deliver

Blaming a faltering economy, FedEx Corp. (FDX) today reported worse than expected third quarter results. The shipping company said it sees little reason to expect immediate improvement, and announced additional cost-cutting moves, including layoffs.

Earnings tumbled 75 percent too $97 million, or 31 cents a share, compared with net income of $393 million, or $1.26 a share, a year earlier. Revenue rose four percent to $1.79 billion. Analysts had expected the Memphis-based company to earn 46 cents.

Wall Street has been worried that FedEx would face difficulties weathering the economic downturn. Shares are down more than 48 percent over the past year. They have tumbled more than 52 percent over the past six months alone as companies cut back on their shipping as their business slowed. During the third quarter, FedEx Ground average daily package volume grew two percent year-over-year. Less-than-truckload average daily shipments decreased 13 percent.

Conditions are so unpredictable, FedEx forecasted earnings of between 45 cents and 70 cents, a range so large that many investors will wonder why the company even bothered.

To make matters worse, FedEx was able to take advantage of lower oil prices. Cuts by OPEC member nations are pushing oil to the $50 level. Since business conditions are deteriorating, FedEx said it had no choice but to take action

"Our financial performance was sharply lower during the quarter due to the global recession," said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer, in a statement. "While we are gaining market share in all of our transportation segments, the downturn in our industry and the severity and expected duration of the recession require that we take additional actions."

Among those actions are cutting the pay of some on-U.S. workers an additional job cuts. FedEx expects the cost reductions efforts to reduce expenses by about $1 billion by 2010. FedEx will take a fourth quarter charge of approximately $100 million.

"To trim costs, FedEx in December cut Smith's salary by 20 percent and reduced pay by 5 percent to 10 percent for other salaried workers," Bloomberg News noted. "The company also suspended retirement account contributions for at least a year and froze hiring."
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