June 19 - FedEx posts higher-than-expected profits, but it's cutting capacity between the U.S. and Asia. Fred Katayama reports.
Federal Express and its jets are synonymous with overnight delivery, but it's the ground game that's driving its profits. The company's fourth quarter profit handily beat analysts estimates, earning $679 million, or $2.13 a share. Operating income from ground shipments rose 13 percent to $557 million, topping the $460 million income of its express business. That shows consumers are still spending cautiously, preferring cheaper slower deliveries over overnight shipments. That's important because FedEx is seen as a bellweather for the economy. FedEx chairman Fred Smith said, "FedEx Ground posted another strong year and FedEx Freight margins continued to improve. These positive developments did not fully offset tepid economic growth and customer preference for less costly international shipping services." FedEx's outlook reflects signs of a slowdown in Asia. The company said it will further cut capacity between Asia and the U.S. next month. It expects that its margin growth will be moderate in the 2014 fiscal year and pick up the year after. FedEx projects the U.S. economy will grow 2.3 percent and that the world will expand 2.7 percent in fiscal 2014. That's lower than the World Bank's forecast for 3 percent global growth. The company's stock has lagged that of rival UPS and other freight carriers this year. S&P Capital IQ analyst Jim Corridore said in a note: "We think FDX's profit improvement plan will help address the weak international results, but it will take time." Time is running out for some FedEx employees. The company says roughly 36-hundred employees will voluntarily leave.