FedEx Lowers 3Q Forecast Due to Weather, Fuel Costs

This story appears in the Feb. 21 print edition of Transport Topics.

Severe winter weather, along with rising fuel prices, are taking a toll on some freight companies, prompting FedEx Corp. to reduce its earnings forecast for its current quarter by 25 cents a share.

The scaled-down forecast for the three-month period ending Feb. 28 represents a reduction of about $80 million in earnings, based on the 314 million shares outstanding. The company, No. 2 on Transport Topics 100 list of the largest U.S. and Canadian for-hire carriers, now expects to report earnings in the range of 70 cents to 90 cents a share, which represents a range of about $220 million to $280 million.

“We experienced significant network disruptions in the U.S. and Europe and unusually high costs from severe winter storms,” said Alan Graf, chief financial officer at FedEx. “In addition, fuel prices continued to escalate. We continue to see strength in our base business across all transportation segments and geographies.”

FedEx also said it will revisit its earlier annual earnings estimate of $4.80 to $5.25 a share when it announces fiscal third-quarter earnings on March 17.

UPS Inc., FedEx’s larger rival, hasn’t made any announcement about its lowering earnings forecasts.

Chief Financial Officer Kurt Kuehn said Feb. 16 at the BB&T Capital Markets transportation conference in Coral Gables, Fla. that he would not comment on the financial effects of February storms.

Kuehn noted that during the company’s Feb. 1 investor call, UPS had said “there were some challenges in January. It was a brutal month. It is a challenging operating environment.”

He said at the Florida meeting that “there was a pretty good storm that went through in early February. All transportation providers had to do some contingency planning.”

For smaller companies, the weather effects have varied.

For example, Cliff Beckham, president of USA Truck Inc., Van Buren, Ark., said “the weather was a huge problem. It was horrible.”

The storm that rolled across the United States during the first week of February reduced the truckload carrier’s revenue by 25% to 30% in that week.

Other storms later in the month had a lesser effect, he said.

On the other hand, Daniel Avramovich, CEO of Pacer International Inc. said the company that is primarily non-asset-based had been “fairly fortunate.”

“The second week of February was rough, but since then business has picked back up,” he said.

“We had some fairly material impact from winter storms that we had in January and early February,” said Arkansas Best Corp. CEO Judy McReynolds, explaining that tonnage has risen 13% so far in this quarter, and would have climbed 15% if the storms had not occurred.

Donald Cochran, CEO, Universal Truckload Service Inc., said, “We have had two pretty good storms in January and February. It just absolutely shut everyone down. We probably pretty much lost three or four days of good productivity.

“Freight didn’t seem to stop,” Cochran said. “We’ve gotten caught up. There was a shortage of equipment [earlier this month] in Pennsylvania and Ohio. That is unusual. It is partly because manufacturing has been strong.”

“We were impacted by weather, certainly, just like many others. This January seemed to be slightly worse than other years,” said Derek Leathers, chief operating officer, Werner Enterprises Inc.

Leathers said that “there has been a noticeable uptick in freight in February.” Part of that was freight postponed because of the storms. The rest of the improvement, he said, was an increase above typical seasonal levels.