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FedEx: Economy is stalling, cuts outlook

September 19, 2012

NEW YORK - FedEx Corp. says the global economy is stalling, and it's going to get worse next year.

A decline in global trade is shrinking earnings at the world's second-largest package delivery company. On Tuesday, FedEx said a continued slowdown in the developed world combined with high fuel prices will keep trade volumes at low levels.

FedEx sharply cut its earnings forecast for the fiscal year ending in May. It also warned net income in the current quarter will fall below analysts' already reduced expectations. FedEx also said major changes to its Express unit - the one taking the brunt of the economic hit - will be announced next month.

Article Photos

In this May 16, file photo, a FedEx delivery truck is seen at the Illinois State Capitol in Springfield, Ill. FedEx Corp. says the global economy is worsening and it's cutting its forecast for the fiscal year ending in May. The world's second largest package delivery company says profit in the current quarter will be well below year ago results.

FedEx further reduced its expectation for U.S. economic growth, although its predictions are mostly in line with economists.

Economic growth around the globe has slowed over the last several months. U.S. industrial production last month fell by the largest amount in more than three years, as factories produced fewer cars, sofas and other goods. U.S. factory activity fell every month of FedEx's fiscal first quarter, while rising gas prices and high unemployment kept consumers from spending freely.

A steep decline in Asian exports due to weakness in Europe is causing most of FedEx's pain. But consumers and business around the globe are choosing to move goods by ground or ocean instead of by air to save money, which is hurting FedEx's core Express unit.

Fear of a further economic slowdown is driving some of that behavior, but FedEx says steadily increasing fuel prices are also playing a big role.

"The world economy has absorbed an incredible increase in the price of fuel," CEO Fred Smith said on a conference call. "And that has had very big implications on the way people think about supply chains on their decisions to move by ocean or whether they move things by air."

FedEx hasn't been able to cut costs fast enough to match the decline in demand. It's reducing flights, taking planes out of service, and last month it offered buyouts to Express unit employees. Operating income in that segment, which is about double the size of any other, fell 28 percent in the first quarter.



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