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FedEx posts higher-than expected profit, will cut more capacity

Handlers scan and affix a courier route label onto packages moving down the belt at the Marina Del Rey, California FedEx station December 12
Handlers scan and affix a courier route label onto packages moving down the belt at the Marina Del Rey, California FedEx station December 12

By Nivedita Bhattacharjee

(Reuters) - FedEx Corp reported a higher-than-expected quarterly profit on Wednesday, sending its shares higher, but the world's biggest air-freight company said it was cutting more capacity between the United States and Asia.

The company, considered an economic bellwether because of the massive volume of goods it moves around the world, is still trying to adjust to increasing demand for cheaper ground transport rather than pricier but faster air shipping.

In particular, the express unit, FedEx's biggest source of revenue, has suffered as more cost-conscious international customers opt to use container ships instead of costly overnight shipment by air. International priority shipment volumes fell 2 percent during the quarter, while international export revenue per package fell 2 percent as rates dropped.

The company said earlier this month that it would permanently retire or will speed up the retirement of 86 aircraft and more than 300 engines as it modernizes its fleet. It is also increasing rates for its FedEx Freight subsidiary by an average of 4.5 percent, effective July 1.

"Our profit improvement program is progressing, but we continue to see the effects of customers selecting lower-rate international services," Chief Financial Officer Alan B. Graf Jr. said. "FedEx Express will further decrease capacity between Asia and the United States in July."

FedEx reported net income of $303 million, or 95 cents a share, for the fourth quarter ended May 31, compared with $550 million, or $1.73 a share, a year earlier. (Graphic: http://link.reuters.com/cyh98t)

Excluding costs of a business realignment program and aircraft impairment charges, the company earned $2.13 a share. Analysts on average were expecting $1.96, according to Thomson Reuters I/B/E/S.

Shares of Memphis, Tennessee-based FedEx were up 3 percent at $102. 48 in morning trading.

Revenue rose 3.6 percent to $11.4 billion, with FedEx Express revenue up 3 percent at $6.98 billion.

Revenue for the ground segment, which has been a strong performer, was $2.78 billion, up 12 percent.

FedEx Ground's average daily volume grew 10 percent in the fourth quarter helped by market share gains and growth in e-commerce.

FedEx forecast earnings growth of 7 percent to 13 percent, excluding special items, for its new fiscal year, assuming U.S. gross domestic product growth of 2.3 percent, world GDP growth of 2.7 percent and the current outlook for fuel prices.

Analysts on average were expecting a profit of $7.31 a share, which would be about 11 percent higher than last year. They termed the outlook conservative.

"FedEx's full-year guidance is readily achievable and creates a lower hurdle rate for success if the economy were to improve at a faster-than-expected rate," Duetsche Bank analyst Justin Yagerman wrote in a note.

Oppenheimer analyst Scott Schneeberger said he expected earnings growth to accelerate in fiscal 2015 and 2016.

(Reporting by Nivedita Bhattacharjee in Chicago; Editing by Gerald E. McCormick and Lisa Von Ahn)

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