UPDATE 4-FedEx shares slide as earnings growth misses Street target

(Adds analyst comment)

By Lisa Baertlein and Aishwarya Nair

March 17 (Reuters) – U.S. delivery company FedEx Corp on Thursday reported lower-than-expected quarterly results, hit by ongoing labor issues and the Omicron outbreak, and said margins at ground of the second semester would not respect the internal objectives.

FedEx shares fell 3.5% to $219.90 in extended trading.

E-commerce shipping has fueled revenue for FedEx and United Parcel Service during the COVID-19 pandemic, but FedEx has been less successful than its rival in translating that extra business into profit.

As labor issues began to ease over the past third quarter, FedEx Chief Operating Officer Raj Subramaniam said volume was lower than expected due to Omicron .

“As such, we expect our second-half floor margins to be below our previous expectations and not hit double digits,” Subramaniam said.

Executives said volume rebounded as Omicron declined. Still, analysts pointed to the growing gap between ground operations at UPS and FedEx.

“You’re working, more or less, with an 8% margin. UPS is about to hit 12%. You were better before,” said Wolfe Research analyst Scott Group.

“We are focused on improving our margins,” Subramaniam said.

In January, FedEx warned that Omicron infections had caused pilot shortages and delayed shipments in its aircraft-dependent Express operation. The news came after FedEx said staffing shortages at its non-union, contractor-based Ground division were hurting profits and delaying deliveries.

Meanwhile, UPS’s unionized workforce has been a bright spot in the tight US labor market. UPS is offering employees better wages and benefits than their nonunion counterparts who deliver for FedEx and Amazon.com, which have struggled to hire and retain drivers and other key workers.

Memphis-based FedEx’s adjusted net income for the fiscal third quarter rose nearly 30% to $1.22 billion, or $4.59 per share. However, that missed analysts’ call for earnings of $4.64 per share, according to Refinitiv I/B/E/S Estimates.

Revenue for the quarter ended Feb. 28 rose nearly 10% to $23.6 billion.

FedEx on Thursday confirmed the full-year guidance it reinstated in December, again calling for non-item earnings of $20.50 to $21.50 per share. In September, FedEx lowered that range to $19.75 to $21.00 per share. (Reporting by Lisa Baertlein in Los Angeles and Aishwarya Nair in Bengaluru; Editing by Jonathan Oatis, Bernard Orr and Richard Pullin)