FedEx shares fall on worries about eroding profits

Shares of FedEx fall on worries about falling profits at core Express business

Associated Press

NEW YORK (AP) -- FedEx Corp. shares tumbled Thursday on worries about eroding profits at its core FedEx Express division.

THE SPARK: The shipping company on Wednesday announced fiscal fourth-quarter results that beat Wall Street expectations, but released disappointing guidance for the current year. Analysts voiced concerns that the outlook could be a sign that profits at its Express division may continue to fall.

THE BIG PICTURE: The Memphis, Tenn.-based company's big FedEx Express division has been dealing with a shift among customers away from priority international air shipments to cheaper but slower options.

Chairman and CEO Fred Smith said that the trend toward economy shipments "is not necessarily a bad thing, and it doesn't necessarily mean that Express can't make more money on the economy business."

THE ANALYSIS: J.P. Morgan analyst Thomas Wadewitz downgraded FedEx to "Neutral" from "Overweight."

"We do not view FedEx's fiscal 2014 guidance as being purposefully conservative but instead we believe it provides an indication of the magnitude of pressure FedEx continues to face in its core Express business, Wadewitz wrote in a note to investors.

The analyst added that FedEx is "geared to serve champagne in a market that wants beer," saying that many FedEx customers are no longer interested in paying for the quickest and most expensive of the company's shipping methods.

Wadewitz added that it might be tough for FedEx to adapt to the change in consumer behavior.

THE SHARES: Down $4.60, or 4.6 percent, to $95.94 in midday trading, after falling as low as $95.64 earlier in the session. Over the past 52 weeks, FedEx shares have traded between $83.92 and $109.66.

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