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NEW YORK (AP) — FedEx shares are losing ground before the opening bell Wednesday after the world's No. 2 package delivery company cut its earnings forecast for the quarter that ended last month.
The Memphis, Tenn.-based company said late Tuesday that the weak global economy is hitting its express unit particularly hard. That unit ships about 3.5 million high-priority packages on an average day and is most sensitive to economic downturns as customers choose slower methods of shipping to save money. The express division also flies a large portion of Asian exports, which are slowing as consumers tighten purse strings in the U.S. and Europe.
While business is softening, costs have gone up. Deutsche Bank analyst Justin Yagerman noted that FedEx Corp.'s fuel costs have gone up 22 percent since it last issued an earnings forecast.
Yagerman said that while he continues to expect an upcoming restructuring of the company's U.S. express network to boost shares, demand remains weak and should keep a lid on shares for the near future. That restructuring is widely expected to be announced at FedEx Corp.'s annual meeting in October. He still rates FedEx a "Buy."
David Ross of Stifel Nicolaus also held onto his "Buy" rating for FedEx, saying he expects the stock to move higher over the next year as the company reigns in costs and benefits from a slowly improving global economy. He cut his target price to $108 from $111, indicating potential growth of 23 percent over the next 12 months.
The stock fell $2.39, or 2.7 percent, to $85.15 in premarket trading Wednesday. It has traded between $64.07 and $97.19 in the past year.