FedEx paints rosy picture as profits soar
FedEx, the package delivery giant, painted a rosy picture of the world economy yesterday when it announced a four-fold increase in second quarter net profits and increased its earnings guidance for the year.
Fred Smith, chairman and chief executive, reported “very strong momentum” across the company and said global and US economic conditions remained “favourable” as businesses replenished inventories and invested at a “healthy pace”.
Mr Smith said the Christmas retail season was looking strong with FedEx having handled 8.1m packages on its busiest day of the year last Monday – 1m more than last year and ahead of its 7.7m target. Rapid growth in e-commerce was among the factors behind FedEx’s strong performance as more people had goods delivered to their homes after ordering on the internet.
“E-commerce sales are up 26 per cent in 2004 and FedEx is riding this tide,” said Gene Huang, FedEx’s chief economist.
Strong flows of Chinese-made consumer electronic products to western markets in the run up to Christmas also contributed to FedEx’s growth, with i-Pods, Apple’s digital music players, among the most popular items.
The group generated Dollars 354m of net profit, or Dollars 1.15 a share, in the second quarter – up from Dollars 91m, or 30 cents, in the same period last year. Revenues rose 24 per cent to Dollars 7.33bn, from Dollars 5.92bn a year earlier. Earnings guidance for the full year was lifted to Dollars 4.60-Dollars 4.70 per share, from the previous Dollars 4.40-Dollars 4.60 range.
FedEx is viewed as a bellwether for the economy because the flow of packages is an indicator of demand for goods and materials. Average daily package volume grew more than 8 per cent year-on-year, led by double-digit growth in ground delivery and international express services.
Shares in FedEx were down 2.77 per cent at Dollars 96.01 by early afternoon, reflecting concern about the sluggish domestic express business and reduced margins from ground deliveries because of high fuel prices. Jon Langenfeld, analyst at Robert W. Baird & Co, attributed the share fall to profit-taking after recent gains and said the results broadly met expectations.
FedEx and its rival UPS are using branded chain stores to compete in the domestic parcel market. FedEx Kinko’s, the office services chain that was acquired in February to bolster the company’s access to consumers, contributed Dollars 524m of revenues.
DHL is also trying to expand aggressively in the US but Mr Smith said FedEx had not felt much increase in competition.
