FedEx Corp. (FDX.N) tumbled as higher labor costs dented earnings and caused the courier to fall short of Wall Street’s expectations.

Key Takeaways

Increased wages fueled an 11 per cent jump in salaries and benefits, the company said. In a statement, FedEx raised its outlook despite the disappointing performance in the quarter ending Aug. 31.

The improved outlook, which covers the fiscal year ending May 31, signals that FedEx expects strong demand for parcel delivery and air cargo in the next three quarters. The company boosted its forecast only three months after setting the goal.

“We are very optimistic about our prospects for profitable growth and remain confident we will reach our goal to improve FedEx Express operating income by US$1.2 billion to US$1.5 billion in fiscal 2020 versus fiscal 2017,” Chief Executive Officer Fred Smith said in the statement.

Capital expenditures rose 13 per cent to US$1.18 billion from the same quarter a year earlier. FedEx has said it expects full-year capital spending to slow to US$5.6 billion from US$5.7 billion in fiscal 2018.

Market Reaction

The shares fell as much as 4 per cent to US$245.50 in late trading in New York, with losses deepening during the company’s conference call to discuss earnings.

Results and outlook:

FedEx forecast adjusted earnings per share for the full year; the guidance midpoint beat the average analyst estimate. Sees FY adjusted EPS US$17.20 to US$17.80, estimate US$17.37 (range US$17.10 to US$17.81) (Bloomberg data) Sees FY capital expenditure US$5.6 billion, estimate US$5.62 billion (range US$5.60 billion to US$5.75 billion) (BD) 1Q adjusted EPS US$3.46, estimate US$3.80 (range US$3.65 to US$3.98) (BD) 1Q revenue US$17.1 billion, estimate US$16.87 billion (range US$16.47 billion to US$17.16 billion) (BD) 1Q adjusted operating margin +7.0% NOTE: 25 buys, 4 holds, 1 sell