FedEx predicts shipping slowdown

MEMPHIS, Tenn. -- FedEx Corp. reported a 6 percent drop in third-quarter earnings Thursday, saying a slow economy and high fuel prices are expected to continue cutting into profits.

The Memphis-based shipper predicted lower fourth-quarter earnings from a year ago, as well as limited earnings growth for its next fiscal year.

"As we survey the current economic landscape, we expect limited earnings growth in (2009), given the current outlook for macro-economic conditions and fuel prices," Chief Executive Frederick W. Smith told market analysts in a conference call.

"There is clearly stress in the housing and financial sectors and they create a drag on the overall U.S. economy, as well as the fuel prices," Smith said, also noting an apparent softening in the labor market. "In calendar year 2008, we expect U.S. GDP to grow more slowly than in 2007."

FedEx, which is often seen as a bellwether for the U.S. economy, expects the international economy "will continue to expand overall, albeit at a slower rate," Smith said. "And this will be fueled by the emerging markets."

Company shares fell 2 cents, or 0.02 percent, to $86.21. Shares have traded in a range of $80 to $119.10 over the past 52 weeks.

"I'm not surprised they lowered their near-term outlook," said Morgan Keegan analyst Art Hatfield. But it is a bit unusual, he said, for FedEx to begin talking about next year's expectations so early.

"Now keep this in mind. They haven't actually said what they expect to earn next year," Hatfield said. "All these comments could change radically in the next three or four months."

FedEx and its larger rival, United Parcel Service Inc., have both indicated they are counting on business overseas to help counteract stalled demand in the U.S.

Peter Morici, a professor and economist at the University of Maryland, said the financial reports suggest a more dire future for the broader economy.

"The parcel carriers are a fantastic gauge of the U.S. economic outlook," he said. "The fact that they are forecasting future weakness further proves that we are in a recession and its duration is unknown."

FedEx said it earned $393 million, or $1.26 a share, in the three months ended Feb. 29, versus $420 million, or $1.35 a share, for the same period last year, when earnings got a benefit of 8 cents a share from a tax-rate adjustment.

Revenue rose 10 percent to $9.44 billion, from $8.59 billion.

Analysts at Thomson Financial expected earnings of $1.22 a share on sales of $9.11 billion.