FedEx posted a 14 percent rise in quarterly profit on Wednesday on stronger margins and cost cuts, but results missed Wall Street estimates, which overshadowed the company’s confident forecast for the holiday shopping season.
Wall Street analysts expressed disappointment at the slight dip in revenue at the express delivery business, FedEx’s biggest unit. They also noted softening volume growth for ground deliveries.
Average daily volume at FedEx Ground rose 8 percent in the fiscal second quarter, slowing from the 11 and 10 percent growth in the previous two quarters, and below the 10 percent expected by Logan Purk, an analyst at Edward Jones.
A 3 percent rise in overall revenue to $11.4 billion and success in ongoing cost cutting efforts helped offset some of the volume weakness.
FedEx earned $500 million, or $1.57 a share, in the second quarter ended November 30, versus $438 million, or $1.39, in the same quarter last year.
Analysts, on average, expected earnings of $1.64 as per Thomson Reuters I/B/E/S.
Shares of the global shipping company slid as much as 3 percent in premarket action. By mid-morning, the stock dipped 0.1 percent at $138.93 on the New York Stock Exchange.
FedEx predicted a strong holiday season and forecast full-year earnings per share growth between 8 percent and 14 percent above last year. Previously, its outlook was for growth between 7 percent and 13 percent.
While part of that boot to earnings per share will be attributed to the company’s repurchase of 10 million shares year to date, FedEx has also said it expects shipping volumes to pick up during the holiday season.
In October, the company forecast more than 85 million shipments during Cyber Monday week, up 13 percent from last year.
On a conference call with analysts, Chief Financial Officer Alan Graf said seasonal increases in volume, revenue, and operating income related to cyber Monday week will come in the third quarter this year, not the second quarter as it was last year.
“More than a quarter of the volume that we see in peak comes in Cyber Week. And if you think about it, that volume and revenue and profit was all shifted to the third quarter,” added FedEx Ground chief executive Henry Maier.
Cyber Monday comes right after the U.S. Thanksgiving holiday as employees return to work and many make purchases on their office computers. The holiday shopping season is the biggest selling period for retailers. Retailers use services like FedEx and United Parcel Service Inc when customers buy online.
Last year, FedEx outlined a multi-year plan to reign in costs, which the company said would boost profits by $1.7 billion.
The company, seen as a bellwether because its results reflect economic activity, has been revamping routes and trimming capacity to Asia and other international markets to cut costs and stem a decline in its express division. The unit has suffered as clients choose slower, cheaper delivery options.
For the second quarter, revenue at its express delivery segment dipped to $6.84 billion from $6.86 billion last year.
CFO Graf said fuel costs decreased 8 percent in the quarter, due to a six percent lower jet fuel prices and fewer flight hours.
Dave Bronczek, chief executive of the company’s express division said FedEx has been using high reliability, low fuel planes like the 777s in its international network, and replacing older planes as a part of being cost effective. running cost effectiveness.