FedEx shares dropped on earnings miss

FedEx (FDX) shares fell sharply Wednesday after the package delivery giant reported earnings that increased yet fell short of Wall Street expectations.

FedEx shares closed down just over 3.7% at $167.78 after recovering from an even steeper drop earlier in the day.

The Memphis-based company said it posted a higher operating margin in the second-quarter, primarily due to growth in U.S. domestic and international export package shipments, lower pension expenses and a slight net benefit from lower fuel prices.

But the benefits were partly offset by higher aircraft maintenance expenses, FedEx said.

Earnings per share came in at $2.14 for the quarter that ended Nov. 30, up from $1.57 for the same period last year. FedEx also reported revenue of $11.9 billion, up 5% from $11.4 billion in last year's second-quarter.

But Wall Street had anticipated better results from FedEx, which is now handling millions of packages amid the year-end holiday shipping rush. Financial analysts surveyed by Fact Set had projected $2.22 in FedEx earnings per share and $11.97 billion in second-quarter revenue.

The company reaffirmed its fiscal year 2015 earnings forecast of $8.50 to $9 per diluted share and said capital spending projections for the year remained at $4.2 billion. The outlook assumes continued moderate growth and a modest net benefit from lower fuel costs, FedEx said.

Additionally, FedEx said it plans to continue buying back the company's stock from investors, but at a "lower pace" than previous repurchases.

Although FedEx benefitted from declining U.S. fuel costs, company officials said the savings so far was less dramatic than the drop in fuel prices across the nation.

"While the daily spot price of jet fuel declined almost 30% from the end of August to the end of November, the average monthly price we paid for jet fuel under our contractual arrangements did not change by a corresponding amount," FedEx CFO Alan Graf told financial analysts in a conference call. "As a result, the average price per gallon for jet fuel in (the second quarter) only declined 8% quarter-over-quarter or 10% year over year."

Frederick Smith, FedEx's CEO, president and chairman, cheered on the holiday-shipping efforts of the company's workers as he announced what he characterized as strong financial results.

"As we enter the final stages of this year's peak shipping season, I'd like to thank the more than 300,000 dedicated team members around the world for again delivering outstanding service to FedEx customers during the holidays," Smith told financial analysts during the conference call.