Delta Air Lines Inc (DAL.N) said on
Wednesday it expected to post a profit in the second quarter,
excluding special items, and plans to cut domestic capacity by
13 percent in the second half of 2008.
Delta, which plans to acquire Northwest Airlines Corp
(NWA.N), said the predicted domestic capacity cut is larger
than the 10 percent reduction the airline forecast in March.
Major U.S. airlines have announced cutbacks as they grapple
with unprecedented oil prices, which have doubled in the past
year. The carriers have been forced to raise fares, introduce
fees, and cut services, jobs and capacity.
In March, Delta unveiled plans to cut 2,000 jobs, offering
voluntary retirement and "early out" programs. On Thursday,
Delta said more than 4,000 employees have chosen to take part
in the programs.
The airline expects to end 2008 with $3.2 billion in
liquidity, down $600 million from December 31, 2007.
Delta said its fuel hedge strategy is expected to offset
nearly $1 billion in fuel cost for 2008.
Delta shares traded down more than 5 percent at $5.42 on
(Reporting by Kyle Peterson and Mark McSherry, editing by
Phil Berlowitz/Jeffrey Benkoe)
Shares of automakers General Motors
Corp (GM.N) and Ford Motor Co (F.N), parts suppliers and auto
retailers all tumbled on Wednesday as investors reacted to
signs of a further slowdown in June auto sales and uncertainty
about when the battered industry will hit bottom.
The sector-wide decline was accompanied by cautious notes
from analysts on the toll the downturn was taking on GM's
liquidity, and by a warning from CarMax Inc (KMX.N) of the
fallout from an unprecedented collapse in demand for larger
trucks and SUVs.
In a move that underscored the pressure on the industry,
Chrysler Chief Executive Bob Nardelli also told employees of
the privately held automaker that overall sales had fallen
below forecasts in early June.
GM's shares dropped more than 5 percent, touching their
lowest level since the recession of 1982. Ford stock also fell
4 percent, erasing gains for the week.
CarMax shares plunged 13 percent as the largest U.S.
used-car dealer suspended its financial forecast and said
traffic at its stores had weakened since late May.
Shares of major new car dealership groups, including
AutoNation Inc (AN.N) and Group 1 Automotive Inc (GPI.N), also
Analysts at JP Morgan and Deutsche Bank both warned that GM
could be forced to borrow heavily as industry-wide U.S. vehicle
sales head toward their lowest level in more than a decade.
"GM is burning cash fast, but it (unlike Ford) still has
many unencumbered assets that can be borrowed against," JP
Morgan analyst Himanshu Patel said in a note for clients.
"The bank debt market is expensive but open, and we believe
GM, most likely before year-end and perhaps as early as the
third quarter, may announce a secured bank deal," he said.
Patel said he expected GM could borrow up to $10 billion,
secured by assets such as its overseas operations, trademarks
for brands and inventories.
For his part, Deutsche Bank analyst Rod Lache said he
expected GM would be forced to come up with a more "aggressive"
restructuring that would allow the automaker to borrow funds to
ride out a projected cash burn of $19 billion through 2009.
Lache also cut his industry-wide U.S. auto sales outlook
for 2008 and the following two years saying leading indicators
pointed toward continued "recessionary levels" of demand.
Lache said he now expects 2009 industry-wide sales of about
15 million vehicles, and sales of 16 million vehicles in 2010.
More immediately, he said, there was evidence that June sales
were falling to "surprisingly low levels."
A survey of dealers, he said, suggested the seasonally
adjusted, annualized rate of sales was running near 13 million
vehicles in the first half of the month, down from 15.2 million
in the first quarter and near 14.4 million in April and May.
NO SENSE OF A TURNAROUND
Nardelli's memo to Chrysler employees, first reported by
the Detroit Free Press, said outside data showed a deep slump
in early June sales for the industry.
"This is the lowest sales level in 16 years and indicates a
significant and continued softening of the U.S. automotive
market," Nardelli said in the memo.
Tom Folliard, CarMax president and chief executive, told
analysts on a conference call that demand had fallen steadily
over the past several months for pickup trucks and SUVs -- a
once-lucrative segment dominated by the Detroit automakers.
"This has been going on for really since the beginning of
the year and has really steepened in the last couple of months.
And as of right now, I couldn't tell you when it's going to
turn," Folliard said.
Auto suppliers' shares were also hit. American Axle &
Manufacturing Holdings (AXL.N), which supplies axles and
related components for trucks and SUVs, dropped 7 percent.
In addition, Magna International Inc (
lay off about 400 workers from a St. Thomas, Ontario, parts
plant, where it makes truck frames, due to what it called a
"considerable downturn" in demand for full-sized trucks.
GM, a major customer for Magna and American Axle, recently
said it would shut four North American truck plants, reducing
its pickup truck and SUV capacity by more than 700,000 units.
GM shares touched an intraday low of $14.75 on the New York
Stock Exchange. That was the lowest level for the stock since
January 1982, according to the automaker's investor relations
(Additional reporting by Poornima Gupta in Detroit and John
McCrank in Toronto; Editing by Maureen Bavdek)
Package delivery company FedEx
Corp (FDX.N) posted a quarterly loss on Wednesday due to high
fuel prices, a weak U.S. economy and a previously announced
write-down, and issued a weak forecast for fiscal 2009.
The news sent the company's shares down 5 percent in
premarket trading and was expected to weigh heavily on the U.S.
stock market. FedEx is considered a gauge of U.S. business
"For me, the shocking part is the guidance," said Al
Meyers, portfolio manager for the AHA Diversified Equity Fund,
which owns FedEx shares. "The management at FedEx are
straightshooters and give conservative guidance.
"This is all based on energy prices and it's simply
shocking," he added.
The company blamed its weak fiscal 2009 forecast on the
impact of high fuel prices on demand for its services.
Following the news, U.S. equity index futures tumbled to
their low of the session and government bond prices rallied
back from overnight losses. The yield on the benchmark 10-year
U.S. Treasury , moving inversely to its price, fell
back below 4.2 percent.
Memphis-based FedEx reported a fiscal 2008 fourth-quarter
loss of $241 million, or 78 cents a share, compared with a
profit of $610 million, or $1.96 a share, a year earlier.
Excluding a one-time charge of $891 million, FedEx reported
earnings of $1.45 a share. Analysts' average forecast was
$1.47, according to Reuters Estimates.
The charge was related to a name change for FedEx Kinko's.
Earlier this month FedEx said it was changing the name of FedEx
Kinko's -- which has struggled in recent quarters as its core
copy print business has underperformed -- to FedEx Office.
FedEx bought Kinko's in 2004.
"Record-high fuel prices and the weak U.S. economy dampened
volume growth and substantially affected our bottom line,"
Chief Executive Fred Smith said. "We will continue to reduce
expenses to match volume and revenue expectations."
Revenue in the fourth quarter rose 8 percent to $9.87
billion. Analysts had expected $9.51 billion.
FedEx and its main rival, Atlanta-based United Parcel
Service Inc (UPS.N), are both seen as bellwethers of U.S.
economic activity. UPS shares were down 3 percent in premarket
FedEx said it expects fiscal first-quarter earnings of 80
cents to $1.00 a share. Analysts expect $1.35.
The company said it expects full-year fiscal 2009 earnings
of $4.75 to $5.25 per share. Analysts' average forecast is
"This guidance incorporates the current high fuel prices
and the related impact on fuel surcharges, which are reducing
demand for FedEx services and impacting yield across the
company's transportation segments," FedEx said in a statement.
Peter Kenny, managing director at Knight Equity Markets,
said FedEx is in the "unique space of not only having higher
fuel costs for trucking, but they're also in the airline space,
so they're facing an enormous challenge to deliver on revenue
growth and cost containment."
(Reporting by Nick Carey, editing by Maureen Bavdek and