FedEx outlook seen ominous for truckers

By Nick Carey - Analysis

CHICAGO (Reuters) - FedEx Corp's (FDX.N: Quote, Profile, Research, Stock Buzz) Friday reduction of its profit outlook because of high fuel costs and weak demand is a bad omen for small U.S. trucking companies that have been hammered by both.

"Trucking companies are getting squeezed at both ends -- by fuel costs and the fact that high gasoline costs are hurting consumers," said Lee Klaskow, an analyst at Longbow Research. "In recent downturns the (U.S.) consumer has shouldered the burden and eased the blow for trucking companies, but this time they may not be able to because of the price of fuel.

"Smaller trucking companies in particular face extremely stiff headwinds."

The U.S. trucking sector has been hit by weak demand since the third quarter of 2006, caused by lackluster retail and auto sales, the housing sector meltdown and faltering U.S. economic activity. Excess truck supply has pushed prices down, as competition for business is fierce.

"There's been plenty of pain from low volumes in the trucking sector and everyone's hanging on for the turnaround," said Keith Schoonmaker, an analyst at Morningstar.

But should smaller operators be forced out of the market in the meantime by high fuel costs and continued low volumes, some analysts say it might be good long-term news for larger companies, as lower supply should allow them to boost the rates they charge.

After the market closed on Friday, Memphis-based FedEx said it now expects earnings per share for the fourth quarter ending May 31 in a range from $1.45 to $1.50, down from its previous forecast of $1.60 to $1.80. When FedEx gave that that previous outlook in late March, company Chief Financial Officer Alan Graf warned that volatile fuel costs made the forecast uncertain.

The package delivery company said on Friday that spiking oil prices had raised estimated fuel costs for the quarter by 7 percent. The cost increase, plus restrained demand for the company's U.S domestic express business and its less-than-truckload services, would result in the earnings shortfall, FedEx said.  Continued...