FedEx Corp.'s fiscal second-quarter profit fell short of analysts' estimates as spending to improve its growing ground-shipping unit dulled the benefit of increased online Christmas shopping.
Operating income at the ground unit fell 12 percent as investment to expand capacity climbed, the Memphis-based company said in a statement Tuesday. The expenditures will help FedEx improve service and improve returns in the long term, Chief Financial Officer Alan Graf said in the statement.
The package-delivery company is spending about $2 billion this year and possibly that much next fiscal year as it expands sorting hubs and distribution centers and increases automation at FedEx Ground to handle growing e-commerce shipments.
Adjusted earnings were $2.80 a share for the quarter ended Nov. 30, trailing the $2.91 average of analyst estimates compiled by Bloomberg.
"The company is facing some steep expectations," said Logan Purk, an Edward Jones analyst. "As a whole, operationally, it actually was a pretty good quarter."
The shares fell 3.2 percent in New York after regular trading. FedEx had gained 33 percent this year through Tuesday's close.
Sales climbed 20 percent to $14.9 billion in the quarter, meeting analysts' projections. FedEx reiterated its outlook for a full-year profit of $11.85 to $12.35 a share, excluding pension accounting adjustments and costs related to the integration and restructuring of Dutch shipper TNT Express.
FedEx reported net income of $700 million, or $2.59 per share, in the three months ended Nov. 30. That's up from $691 million, or $2.44 per share, in the same quarter a year ago.
Revenue rose at FedEx Express, the company's cargo airline, and the ground unit as they moved more packages and earned more per shipment on higher base rates, the company said.
FedEx has said it expected to handle about 357.5 million packages this Christmas, 10 percent more than last year, on an expected jump in online shopping. The company hired more than 50,000 temporary workers for the peak shipping period, less than in 2015, as it boosted automation.
A coalition of gay-rights and gun-control activists is taking on FedEx for discounts it offers to members of the National Rifle Association.
The group has started an online campaign and plans protests today at FedEx retail stores in Denver, Atlanta, Memphis, and Orlando, Fla., said Igor Volsky, director of Guns Down, a Washington-based group that advocates for fewer guns in the U.S. and is one of 10 participating organizations. A Dec. 7 letter to the company got no response, he said. FedEx didn't immediately respond to a request for comment.
FedEx offers shipping discounts of as much as 26 percent to members of the NRA, the gun-rights group with 5 million members, as part of a program that also has special offers for Visa Inc. cards, according to Guns Down. Separate programs offer deals on Hertz rental cars and Wyndham hotels, according to the NRA website.
"FedEx is one of the biggest and most recognizable brands" with NRA discounts, Volsky said. "If they really value investing in underserved communities, which we think they do, then partnering with the NRA really undermines that mission."
Business on 12/21/2016