FedEx Corp. , the world's No. 2 package delivery company, reported a higher quarterly profit but pared its outlook for the full year, citing fuel prices and moderate global economic growth, sending its shares down some 10 per cent.
"While there's been considerable speculation that the economy has or will soon enter a recession, this is not our view at present," Chief Executive Fred Smith told analysts on a Thursday conference call.
The poor consumer mood and reticence to open their wallets very widely is the biggest drag on improvement and needs to change for FedEx to benefit from economic expansion, several company executives said.
"We expect sluggish economic growth will continue, largely due to a lack of confidence that U.S. and European policy makers will effectively address current economic challenges," Mr. Smith said.
Analysts had expected the company to lower its earnings guidance based on a tepid domestic economy and international trade that remains slow.
Businesses continue to keep a lean inventory based on consumer sentiment, heightening the focus on cost controls as well as rate increases to boost profits.
"It's a cheap stock, and if this is a slowdown it's probably an opportunity to buy, but if it's more an indication of recession then I would say you wouldn't want to own it," said Donald Porter at Dalton, Greiner, Hartman, Maher & Co, which holds United Parcel Service shares.
FedEx said its strong ground and freight results offset the impact of slowing economic growth, which stifled volumes, and announced more rate increases.
At FedEx Express, the largest division representing more than 60 per cent of revenue, domestic revenue per package rose 13 per cent on higher fuel surcharges, yield management and increased weight per package even as average daily package volume dropped 3 per cent.
FedEx's International Priority revenue per package grew 16 per cent for the same reasons as well as the favorable impact of exchange rates, though average daily package volume fell 4 per cent driven by declines from Asia.
"Clearly we're seeing a slowdown, particularly out of Asia, but there are pockets of strength," said Kevin Sterling, a BB&T Capital Markets analyst.
Memphis, Tennessee-based FedEx reiterated its multiyear plan to spend $4.2-billion (U.S.), which analysts expect will largely go toward updating its fleet to more fuel efficient aircraft such as the Boeing 777 freighter.
FedEx expects to benefit, particularly during peak season, if orders increase and retailers need more expedited transportation.
"Our customers' hair is not on fire," said FedEx Chief Financial Officer Alan Graf. "They're just saying, you know, we're going to be steady as she goes, so it just feels completely different than it did back in 2008."
The sheer volume of goods moved by FedEx makes its shipment trends a bellwether for consumer demand and economic growth.
FedEx's trucks and planes handle packages equivalent to about 4 per cent of U.S. gross domestic product and 1.5 per cent of global GDP.
The company runs the world's largest cargo airline. It is considering buying about 50 wide-body freighters from Boeing Co and Airbus to update its fleet.
FedEx, which like UPS has been able to pass along rate increases with limited customer push-back, said it will raise shipping rates a net 3.9 per cent average for U.S. domestic, U.S. export and U.S. import services starting Jan. 2.
Pricing changes for FedEx Ground and SmartPost will be announced later in the year. The company started a 6.75 per cent general rate increase earlier this month.
FedEx said its fiscal first-quarter profit, which slightly beat forecasts, was $464-million, or $1.46 per share, compared with $380-million, or $1.20 per share a year ago.
Analysts, on average, had expected $1.45 per-share profit, according to Thomson Reuters I/B/E/S.
It pared its fiscal 2012 guidance to $6.25 to $6.75 per share from its June estimate of between $6.35 and $6.85 a share based on the meager economic growth.
U.S. GDP grew at a 1 per cent annual rate in the second quarter, and just 0.7 per cent in the first half of the year, dragged by high gasoline prices and supply chain disruptions after Japan's March earthquake and tsunami.
The Federal Reserve on Wednesday ramped up aid to the U.S. economy, warning of "significant" downside economic risks including global financial markets strains.
FedEx's revenue rose 11 per cent to $10.52-billion in the quarter that ended Aug. 31, from $9.46-billion a year earlier. That was above the $10.32-billion forecast on average by Thomson Reuters I/B/E/S.
FedEx shares fell 8.6 per cent in early trading to $66.20, putting them down 30 per cent so far this year.
With share prices depressed, the company said it plans to buy back 5.7 million shares under its existing repurchase authorization.
The Dow Jones Transportation average has dropped about 20 per cent this year.
UPS, the No. 1 package delivery company, in an investor meeting last week affirmed its call for record 2011 earnings, downplaying the likelihood of a double-dip recession. Its shares were down 3 per cent in early trading.