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FedEx predicts slower earnings growth this year

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NEW YORK — FedEx Corp. said Tuesday that slow global economic growth will crimp its earnings over the next 12 months. The company vowed to make significant cost cuts to counter any drop in package shipments.

The world's second-largest package delivery company is closely watched for signs about the health of the economy. It forecast moderate growth for both the U.S. and global economies, citing the debt crisis in Europe and slowing growth in Asia.

The company's results for the fourth quarter did top Wall Street estimates if a charge for retiring planes is excluded. Its stock rose nearly 3 percent in morning trading.

The Memphis, Tenn. company's forecast for the first quarter and fiscal year fell below Wall Street's expectations. FedEx faces a number of headwinds, including higher salaries and pension costs, as well a shift by customers to cheaper shipping options to save money. The company predicts fiscal year 2013 earnings of $6.90 to $7.40 per share. That excludes major cost reductions it plans to announce in the fall. Wall Street analysts expect earnings of $7.39 per share.

FedEx's fiscal 2013 forecast implies growth of 7 to 15 percent, compared with 40 percent growth in 2012. For the fiscal ended in May, FedEx said its net income rose to $2.03 billion, or $6.41 per share, compared with $1.45 billion, or $4.57 per share, a year earlier.

In a note to clients, Jefferies analyst Peter Nesvold said that while the forecast highlights a weakening global economy, higher costs are the main reason it lags Wall Street's expectations. He notes that a reorganization in FedEx's U.S. express unit, including possible job cuts, could boost earnings in the long run.

FedEx is calling for 2.2 percent economic growth in the U.S. for a calendar 2012 — higher than the 2.1 percent it predicted three months ago. It sees that rising to 2.4 percent next year, about in line with the current consensus of economists.

In the latest quarter, FedEx earned $550 million, or $1.73 per share, compared with $558 million, or $1.75 per share, a year earlier. Revenue rose to $11 billion from $10.55 billion a year ago. Without the charge to retire planes, FedEx earned $1.99 per share, 4 cents better than Wall Street estimates.

FedEx is getting rid of more aircraft to slim down its express network as more consumers opt for slower shipping services to save money. Operating income in that unit fell 34 percent including the one-time charge, or 3 percent without it.

FedEx made 6 percent more per package in its U.S. unit despite a 5 percent decline in total shipments. It credited that to growth in its overnight service and higher customer charges for fuel. International priority shipment revenue rose 3 percent, while volume fell 3 percent as growth in Asia slowed.

The world's biggest package shipping company, Atlanta-based United Parcel Service Inc., also cited slowing Asian shipments when it reported lower-than-expected first-quarter results in late April. Much of UPS' profit growth came from its core U.S. business, where revenue was up on higher volume and prices. But that was offset by a shift toward lighter packages and slower shipping methods.


Samantha Bomkamp can be reached at www.twitter.com/SamWillTravel .