FedEx Trims Outlook on Weak Demand

FedEx on Wednesday trimmed its earnings outlook for its fiscal year amid weak demand in its freight segment and higher costs in its ground segment. The downbeat guidance followed weaker-than-expected profit for its August quarter. FedEx said it is now expecting earnings of $10.40 to $10.90 for the year, down from its previous guidance of $10.60 to $11.10 a share. FedEx said it is seeing improvements from its cost-cutting plans, but it is experiencing weaker less-than-truckload demand and higher-than-expected self-insurance reserves, on top of higher operating costs at FedEx Ground. Shares of FedEx, which rose 2.5% Tuesday, fell 3.3% to $148.94 in premarket trading. The stock is down 0.4% over the past 12 months. FedEx has been pouring money into its ground segment as it tries to keep up with the boom in online shopping. Founded as an air express company, FedEx is relatively new to ground delivery compared with century-old rival United Parcel Service. FedEx only added its home delivery service in 2000 and has been rapidly expanding its ground network to accommodate the big increase in e-commerce packages.

On Tuesday, FedEx announced it would raise shipping rates at its FedEx Express, FedEx Ground and FedEx Freight shipments starting Jan. 4. In addition, FedEx said it would increase the surcharges for shipments that exceed the published maximum dimensions in the FedEx Ground network starting Nov. 2. The move comes as FedEx heads into its crucial holiday shipping season. Overall, for the first quarter ended Aug. 31, FedEx posted a profit of $692 million, or $2.42 a share, up from $653 million, or $2.26 a share, in the year-earlier period. Revenue rose to $12.3 billion from $11.7 billion a year ago. Analysts polled by Thomson Reuters recently expected per-share earnings of $2.46 on revenue of $12.3 billion. At its ground segment, revenue jumped 29% to $3.83 billion, helped by its acquisition of logistics provider GENCO Distribution System Inc. and higher ground revenue per package and volume. At the company's biggest segment--express--revenue fell 4% to $6.59 billion. A 1% increase in U.S. domestic package volume was offset by lower fuel surcharges and currency impacts. FedEx said its freight segment's revenue was essentially flat at $1.61 billion, as shipments for the less-than-truckload operation edged down 1%. Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com