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Winter storms hit FedEx's quarterly results, outlook

An all-electric FedEx delivery truck is seen in San Diego, California September 24, 2013. REUTERS/Mike Blake
An all-electric FedEx delivery truck is seen in San Diego, California September 24, 2013. REUTERS/Mike Blake

By Nivedita Bhattacharjee

(Reuters) - FedEx Corp on Wednesday said severe winter conditions had hurt quarterly earnings and revenue, prompting the world's No. 2 package delivery company to cut its fiscal-year profit forecast.

The unusual weather disrupted operations, reduced shipping volumes and increased costs, decreasing operating income by about $125 million in the third quarter ended on February 28, FedEx said.

But the company also said it was on track with its plan to improve earnings at the FedEx Express air delivery unit by $1.6 billion by the end of 2016.

FedEx reported earnings of $378 million, or $1.23 a share, compared with $361 million, or $1.13 a share, a year earlier. Analysts on average were expecting $1.45 a share, according to Thomson Reuters I/B/E/S.

Revenue rose 3 percent to $11.3 billion, missing forecasts of $11.43 billion.

The company said it expected to earn $6.55 to $6.80 a share for the year, down from its earlier outlook of $6.73 to $7.10.

Analysts had forecast $6.89.

While analysts expected weather conditions to hurt FedEx, it was difficult to estimate the financial impact without interim data, said Morningstar analyst Keith Schoonmaker.

Shares of FedEx were down 0.4 percent at $137.99 in afternoon trading.

"While we were disappointed with the third-quarter earnings miss, the shortfall was due to weather-related costs," Deutsche Bank analyst Justin Yagerman wrote in a note to clients. "FedEx remains one of our favorite ways to benefit from an improving economy."

FedEx's numbers provide the first real look at the impact the brutal winter had on the shipping industry. Temperatures across a vast area of the United States, from the Great Plains through the Midwest and into the northern Appalachians, ran 6 to 10 degrees Fahrenheit (3.3 to 5.5 degrees Celsius) below normal for 2-1/2 months straight.

Companies across the board have been talking about how the weather hurt their quarterly results. McDonald's Corp partly blamed a fall in January sales at its established U.S. restaurants on the frigid cold and snow, while vitamin and nutritional supplements retailer GNC Holdings Inc warned that its first-quarter results would miss expectations for that reason.

Ford Motor Co , railroad operator CSX Corp and air carrier United Continental Holdings Inc have also said the weather was affecting operations in the first quarter.

During the third quarter, FedEx entered into an accelerated share repurchase agreement to buy back an aggregate of $2.0 billion of common stock.

TWITTER TALES

The third-quarter results benefited from Cyber Week, a heavy online shopping period that had fallen in the second quarter last year, as well as from one additional operating day, the company said.

However, problems stemming from the harsh winter overshadowed those benefits.

Apart from bad weather, FedEx, like bigger rival United Parcel Service Inc , was also hit by an unprecedented surge in online holiday shipping volumes.

Typically, a rise in online sales is good news for companies like these because it means more demand for their services. But this time, UPS said it had been overwhelmed by the volume of holiday packages. The arrival of Christmas presents around the globe was delayed, and angry customers took to social websites to complain.

However, on a conference call with analysts, FedEx Chief Executive Officer Frederick Smith said the company was able to handle a rise in volumes and that social media might have blown the problems out of proportion.

"We live in a world where Twitter and social media makes anecdotes," Smith said. "That was the big difference."

While an increase in e-commerce was helpful to FedEx, he said, many shippers did not have the ability to handle last-minute orders, which added to the holiday delivery congestion.

Many industry experts think shoppers are more comfortable with making online purchases at the last minute because large online retailers like Amazon.com Inc can deliver the orders in one or two days. Not all retailers have the necessary infrastructure to do that, however, so courier companies saw a huge rise in last-minute shipping volumes.

In the third quarter, average daily volume at FedEx's ground unit rose 8 percent.

(Removes extraneous "'s" after FedEx Corp in first paragraph)

(Reporting by Nivedita Bhattacharjee in Chicago; Editing by Chizu Nomiyama and Lisa Von Ahn)

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