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FedEx 3Q earnings slip
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March 21, 2001: 12:20 p.m. ET
Express carrier cites weakening economy, but holds to 4Q forecast
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NEW YORK (CNNfn) - Express carrier FedEx Corp. saw profits slip in its fiscal third quarter, citing worsening economic environment throughout the period, but said it still should be able to meet or beat fourth-quarter forecasts.
The Memphis, Tenn.-based company posted net income of $109 million, or 37 cents a diluted share, in the quarter ended Feb. 28, down 4 percent from $113 million, or 39 cents a share, a year earlier.
 The company benefited from a gain of 4 cents a share in the latest quarter resulting from a tax rate change. But earnings tracker First Call said it believes that still should be counted when comparing results to forecasts, meaning the carrier edged past lowered consensus EPS estimate of 36 cents. Analysts lowered their forecasts after a Dec. 14 warning from the company about weak pre-holiday shipping levels.
FedEx said the slowing U.S. economy continued to hit results as the quarter progressed.
"Market conditions have deteriorated more than we anticipated, as reflected by numerous news accounts of earnings warnings and layoffs, particularly in the auto and high-tech sectors," Alan Graf, chief financial officer, said. "Volume growth, yield growth and weights for February dropped noticeably for all of our operating units."
Overall revenue increased 7 percent to $4.8 billion from $4.5 billion, but part of that gain came from the acquisition of American Freightways, a trucking company, in January.
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FedEx Ground, the deferred parcel delivery unit that is adding home delivery to its core business-to-business operation, also had a 7 percent growth in revenue. But the company's core FedEx Express had only a 1 percent revenue increase in the quarter.
Graf told analysts and reporters during a conference call that the company's overnight shipment volume declined for the first time in the company's history, and he said that overall shipment data were similar to what the company saw during the 1990-91 recession period.
"Economic growth during the quarter evaporated," he said.
Not only is the company seeing pricing pressure due to rate cuts by competitors, along with drop in shipment volume, but the average weight per package also is declining. Comparisons with the year-earlier quarter were hurt not only by the economic slowdown but also by the heavy shipments ahead of Y2K.
Still, FedEx says it expects EPS of 85 to 90 cents in the fourth quarter. That would give it second-half earnings a bit above the $1.15 to $1.25 a share range it forecast at the time of the December warning. First Call's fourth-quarter EPS forecast stands at 85 cents.
The company said it is able to do this with strict cost control. FedEx Express has a smaller staff in terms of full-time equivalent positions than it did two years ago, despite higher volume and better service performance, Graf said.
"Continued good strong cost management will be implemented in the fourth quarter," Graf promised.
Investors were cheered by the company's profit performance and assurance about future earnings in the face of the weakening economy. Shares of FedEx (FDX: Research, Estimates) gained $2.77 to $43.02 in midday trading Wednesday. 
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