FedEx Corp said on Wednesday that healthcare and pension costs will pinch profits in 2011, sending its shares down despite quarterly results that beat analysts' expectations.
The company projected 2011 earnings per share in the range of $4.40 to $5.00, disappointing Wall Street, which had expected $5.05 per share, according to Thomson Reuters I/B/E/S.
We had a much bigger pension hit than I think most people were anticipating, Chief Financial Officer Alan Graf Jr told analysts on a conference call.
FedEx's pension and retiree medical expenses will increase by about $260 million in 2011. Inflation and an aging FedEx workforce are pushing up healthcare costs, spokesman Jess Bunn said.
The recovery will also trigger the reinstatement of employee compensation programs and a spike in the aircraft maintenance necessary as planes are returned to service.
Wall Street, and this includes myself, was not accurate in projecting the expenses that come along with a recovery, said BB&T analyst Kevin Sterling.
After the announcement, shares were trading at 17.3 times 2011 earnings, up from 16.4 based on projected annual earnings of $4.80 a share. The $4.80 figure is the midpoint of what the company forecast as its earnings for next year.
FedEx posted fourth-quarter earnings of $696 million, or $1.33 per share, compared with a year-earlier loss of $849 million, or $2.82 per share.
Analysts had expected earnings of $1.32 per share, according to Thomson Reuters I/B/E/S.
The company said it had earned 64 cents a share in the year-earlier period before charges, mainly to write down the value of its acquisitions of Kinko's Inc and Watkins Motor Lines.
It's really an issue on the cost side, not the revenue side, Jesup & Lamont Managing Director Helane Becker said. That they're bringing some aircraft out of the desert means they obviously think business is going to be fairly strong.
FedEx's fourth-quarter revenue jumped 20 percent to $9.43 billion, beating analyst estimates of $9 billion.
Chief Executive and founder Fred Smith told analysts FedEx is forecasting an increase in industrial production to a positive 5 percent from a negative 3.3 percent.
Both FedEx and UPS , the world's largest package delivery company, handle such major players in the world's shipping they are considered economic bellwethers.
Shipments by air are growing as companies find themselves with inventories too lean to meet customer demand using slower modes of transport, Smith said. Asian and Latin American volumes have been particularly strong.
Average daily package volume for FedEx's International Priority express service rose 23 percent in the fourth quarter. Asian exports were up 41 percent.
Still, investors are worried about Europe's sovereign debt crises.
Shares of both FedEx and rival United Parcel Service Inc are down about 10 percent in the past six weeks, reflecting the broader market's recent slide on concerns that nations such as Greece and Spain might default on their debt.
But year-to-date, UPS is up five percent and FedEx is down about 2 percent. FedEx' shares have taken a hit because a version of the pending Federal Aviation Authority reauthorization bill contains a provision that would make it easier for FedEx employees to unionize, Sterling said. UPS is already heavily unionized.
FedEx shares were down 5.6 percent at $78.36 in late trading on the New York Stock Exchange. UPS shares were down 0.5 percent at $62.38.
(Reporting by Helen Chernikoff; Editing by Maureen Bavdek Matthew Lewis and Leslie Gevirtz)