Parcel delivery service FedEx posted disappointing quarterly earnings on Tuesday, but the company calmed investor concerns with projections of higher margins in the near-term.
Shares of FedEx tumbled 4% after the earnings release. The delivery stock, like UPS, serves as an indication of the health of the economy. The stock bounced back shortly after, trading up 2.4% at $196.39.
Revenue in the last quarter increased by 19% to $15 billion, up from the $12.65 billion in revenue posted last year. Higher costs pushed margins lower in the freight and ground segments, which only saw income rise by 11%.
FedEx Turning a Corner
Still, margins in the company’s ground segment were higher than the previous quarter, which came in at 10.5%. After struggling with lower margins for three straight quarters, FedEx appears to be turning a corner.
FedEx noted that fuel costs increased by 30% year-over-year, The company now plans to change the way it uses fuel surcharges to ease volatility in the future.
Net income for the third quarter came in at $562 million, or $2.07 per share. The company posted $507 million, or $1.84 per share, a year prior.
Taking into account one-time items, earnings per share came in at $2.35. Analysts were looking for $2.62 per share.
FedEx CEO Fred Smith states in a conference call with analysts that the company projects a margin of “15 percent plus in the current quarter.” That would mark a significant increase over the third-quarter margin.
“Margins, cash flows and returns are going to increase over the next several years,” Smith said.
FedEx, like other delivery services, has been struggling with lower margins, as residential deliveries are more costly than deliveries to businesses.
Along with the projected improved margins, FedEx also expects to reduce capital spending by $300 million. CEO Fred Smith said the company doesn’t expect the spending overlay to change anytime soon.
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