(Bloomberg) -- FedEx Corp (NYSE:FDX). is worried about President Donald Trump’s tariffs.
Such measures are “counterproductive to economic growth,” Chief Executive Officer Fred Smith said on a conference call Tuesday to discuss earnings. Smith said he was “concerned” that Trump’s plans to impose trade duties would undermine a broad-based global expansion and dent the benefits of lower U.S. corporate tax rates.
“The better approach is to encourage open markets and free exchange of products and services and to reduce barriers to trade,” Smith said on the call. He went on to instruct listeners to search for the dictionary definition of tariff, calling it “a tax or a duty to be paid on a particular class of imports or exports.”
In assailing the president’s plans, Smith joined companies from Walmart (NYSE:WMT) Inc. to Amazon.com Inc (NASDAQ:AMZN). that have warned of economic pain from sweeping trade actions. Trump, who announced duties on steel and aluminum imports this month, is planning to impose tariffs worth $60 billion against China as early as this week, according to reports in media outlets including the Washington Post and Bloomberg News.
Mixed Results
FedEx is a direct beneficiary of global commercial links. The Memphis, Tennessee-based courier increased its profit forecast for the second straight quarter amid ever-expanding online purchases. While it’s getting a boost from higher prices and package volumes for ground-delivery services, it’s struggling to maintain profit margins in its Express air-freight business as volumes declined and costs rose.
“We view this quarter as a bit of a disappointment due to weakness in the Express business,” said Logan Purk, an analyst at Edward Jones. “However, we were pleased the company showed improvement in the ground business and maintained guidance for the TNT Express integration.”
FedEx acquired TNT in 2016 to secure a European ground network. Packages will flow across the combined FedEx-TNT network by May 31 and global sales forces will be aligned in fiscal 2019, a year earlier than expected, the company said.
Adjusted earnings for fiscal 2018, which ends in May, will be $15 to $15.40 a share, the company said. Three months ago, the company predicted $12.70 to $13.30. Even after excluding the benefit from U.S. tax cuts, the midpoint of the profit outlook was 81 cents a share higher than the previous forecast, Purk estimated.
The stronger outlook is based on “foreign tax benefits from our international corporate structure, the benefits from U.S. tax reform and improved operating performance,” FedEx Chief Financial Officer Alan Graf said in the earnings statement.
FedEx fell 1.6 percent to $247.88 after the close of regular trading in New York. The shares climbed 1 percent this year through Tuesday, compared with the 1.6 percent increase in the S&P 500 Index. UPS fell 9.3 percent during the same period.
Adjusted earnings for the fiscal third quarter ended Feb. 28 rose to $3.72 per share, compared with the $3.11 average of analyst estimates compiled by Bloomberg. Sales climbed 10 percent to $16.5 billion. Analysts had predicted $16.2 billion.
Investment Plan
FedEx reduced its capital spending plan by $100 million to $5.8 billion, including $1.4 billion to complete its integration of TNT. FedEx accelerated the effort after the unit was hit by a cyberattack in June, boosting costs to mesh the companies from an original estimate of $800 million.
FedEx said in January it would spend $3.2 billion to increase wages, fund pensions and expand its Express hub in Indianapolis as a result of U.S. tax reform that it expects to boost the economy and domestic investment.
Those investments were made without an increase in capital spending plans. Separately, the company said last week it would invest $1 billion over six years to build a new Express hub in Memphis.
CEO Smith said the company is assisting authorities in a probe after a package exploded at a FedEx sorting facility near San Antonio. Two parcels at two separate FedEx locations are connected to four blasts in Austin, Texas, earlier this month, the Bureau of Alcohol, Tobacco, Firearms and Explosives said in a joint statement with the Federal Bureau of Investigation and Austin police.
