By William Trent, CFA of Stock Market Beat

Over the weekend we made our forecast for the FedEx earnings report, saying “We think the risks lie to the downside due to consumer weakness and the read-through from box makers.” As it turns out, we nailed this one.
FedEx Reports Third Quarter Earnings: Financial News – Yahoo! Finance

FedEx Corp. (NYSE: FDX – News) today reported earnings of $1.35 per diluted share for the third quarter ended February 28, compared to $1.38 per diluted share a year ago. Third quarter results were negatively impacted by a slowing economic environment, lower fuel surcharges and severe winter storms, with the storm impact estimated to be $0.06 per diluted share. Results for the quarter also include an $0.08 per diluted share benefit from a reduction in the company’s effective tax rate.

FedEx Corp. reported the following consolidated results for the third quarter:

• Revenue of $8.59 billion, up 7% from $8.00 billion the previous year
• Operating income of $641 million, down 10% from $713 million a year ago
• Operating margin of 7.5%, down from last year’s 8.9%
• Net income of $420 million, down 2% from $428 million a year ago

Total combined average daily package volume at FedEx Express and FedEx Ground grew 4% year over year for the quarter, led by ground and international express package growth.

“The U.S. economy grew at a lower rate than we expected in the third quarter, and we saw continued adjustments in the automotive and housing markets. I believe, however, this represents a healthy transition for the economy as it phases into a more sustainable growth rate,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “FedEx is in excellent position to take full advantage of global economic-growth trends and deliver overall outstanding financial results in the long run.”

Consensus estimates called for $1.33 in EPS and $8.7 billion in revenue. With a net $0.02 benefit from one-time items, the EPS number was right in line but sales were light. For next quarter the Street expected $9.3 billion in revenues with $2.03 in EPS, while for the full year they were hoping for $6.78 on $35.5. billion. The midpoint of the guidance range provided by the company is disappointing.

For the fourth quarter, earnings are expected to be $1.93 to $2.08 per diluted share, while earnings for the full year are expected to be $6.45 to $6.60 per diluted share. Excluding the net impact of the costs associated with the new pilot labor contract, the updated guidance for fiscal 2007 is $6.70 to $6.85 per diluted share, an increase of 12% to 15% year over year excluding the impact of last year’s non-cash lease accounting charge.

Given that the disappointment appears to be in line with our expectations (which were previously discussed) we have little to add here.

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