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FedEx profit drops 12%, less than investors feared

Couriers load packages onto vehicles as other packages move down the belt at the Marina Del Rey, Calif., FedEx station Dec. 12, 2011.

© Fred Prouser / Reuters/REUTERS

FedEx Corp. profit fell 11.9 per cent in the second quarter, less than investors had feared, as the No. 2 U.S. package delivery company struggled to improve demand at its air freight business.

The company reported fiscal second-quarter earnings of $438-million, or $1.39 per share, on Wednesday, compared with $497-million, or $1.57 per share, a year earlier.

Disruptions relating to Superstorm Sandy – which walloped the East Coast late in October and killed more than 130 people – pulled earnings down by about 11 cents per share.

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Factoring out those charges, profit was $1.50 per share, more than the $1.41 analysts had forecast, according to Thomson Reuters I/B/E/S.

Memphis, Tenn.-based FedEx has been trying to improve profit at its air express business, which has seen demand fall as shippers turn to less costly ways of shipping goods. Operating profit at that unit, which accounts for more than half FedEx's sales, fell 33 per cent in the quarter.

"Persistent weakness in the global economy and increased demand for lower-yielding international services limited profits at FedEx Express," said chief executive officer Fred Smith, referring to the company's air freight operation.

Mr. Smith laid out plans in October to cut costs at the unit.

Revenue grew 4.7 per cent to $11.1-billion from $10.6-billion a year earlier.

The company held steady its profit forecast for 2013 – it expects to earn $6.20 per share to $6.60 per share for the fiscal year through May. In September, FedEx had cut that forecast by about 10 per cent.

FedEx, which competes with larger rival United Parcel Service Inc., said shipments relating to the holiday shopping season – a key period for U.S. retailers – were on track to set a record.

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FedEx shares have gained about 9 per cent over the past 12 months, outperforming the 5-per-cent rise in shares of rival UPS. Still, both companies have underperformed the broader U.S. market; the Standard & Poor's 500 index has surged 19 per cent over the same period.

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