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FedEx says economy is worsening, cuts outlook

Samantha Bomkamp, AP Business Writer

NEW YORK (AP) -- 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 also said Tuesday that net income for the current quarter ending in November should fall well below last year's quarter. The stock lost about 2 percent in premarket trading.

The Memphis, Tenn. company now expects to earn between $6.20 and $6.60 per share for the full fiscal year, compared with a previous forecast of $6.90 to $7.40 per share.

FedEx is seeing a drop in demand for more expensive priority services. As the global economy has slowed, FedEx customers have switched to cheaper deferred delivery services. FedEx hasn't been able to cut costs fast enough to match the decline in demand.

This trend is most prominent in the Express unit, where FedEx has already made cuts but plans to make more. It's reducing flights, taking planes out of service, and last month it offered buyouts to employees. Operating income in that unit, which is about double the size of any other, fell 28 percent in the first quarter. Revenue rose 1 percent as higher rates countered lower volume.

FedEx plans to announce a restructuring for that unit next month.

For the current quarter, FedEx forecasts earnings of $1.30 to $1.45 per share, compared with $1.57 per share last year. That's well under analysts' forecasts.

FedEx's forecasts are closely watched for signals of future economic health. Its results provide insight into the global economy because of the number of products it ships and the number of countries in which it does business.

In the three months that ended in August, FedEx Corp. earned $459 million, or $1.45 per share. That hit the top end of its recently lowered estimate. Revenue rose 3 percent to $10.79 billion. It earned $464 million, or $1.46 per share, on revenue of $10.52 billion in the same quarter a year ago.

The company's ground unit performed better in the first quarter as consumers and businesses opted for slower shipments to save money. Operating income in the company's ground segment rose 9 percent on an 8 percent increase in revenue.