FedEx sees earnings per share fall by 75%
FedEx Corp. reported earnings of $0.31 per diluted share for the third quarter ended 28 February, compared to $1.26 per diluted share a year ago – a drop of more than 75%. FedEx Corp. reported earnings of $0.31 per diluted share for the third quarter ended 28 February, compared to $1.26 per diluted share a year ago – a drop of more than 75%.
“Our financial performance was sharply lower during the quarter due to the global recession,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “While we are gaining market share in all of our transportation segments, the downturn in our industry and the severity and expected duration of the recession require that we take additional actions.”
Cost-Reduction Actions
In light of the continuing deterioration in the global economy, FedEx will implement additional cost-reduction initiatives, both in the US and internationally. These measures include the following:
• Network capacity reductions at FedEx Express and FedEx Freight
• Further reduction of personnel and work hours
• Expansion of previously announced pay actions to include non-US employees, where permitted
• Streamlining of information technology systems and other internal processes
• Additional reductions in other spending categories
• Increased economies in the acquisition of goods and services
These cost-reduction actions are expected to result in fourth quarter charges of approximately $100m, excluding any potential asset impairment charges. For fiscal 2010, these actions are targeted to reduce expenses by approximately $1bn.
“Our goal when we implemented compensation reductions in January for US salaried personnel was to both protect our business and minimize the loss of jobs,” said Smith. “With industrial production and global trade trends worsening since last quarter, we are applying these additional measures to continue to secure as many of our jobs as possible during this downturn. We remain focused on providing outstanding service, and will ensure that our actions do not impede our industry-leading customer experience.”
Outlook
FedEx expects earnings to be $0.45 to $0.70 per diluted share in the fourth quarter, excluding any one-time charges. Earnings in last year’s fourth quarter were $1.45 per diluted share, excluding a charge of $891m ($696m, net of tax, or $2.22 per diluted share) related predominately to non-cash asset impairment charges associated with the decision to minimize the use of the Kinko’s trade name and a reduction in the value of the goodwill resulting from the Kinko’s acquisition. This outlook assumes continued weak global macroeconomic conditions and stable fuel prices.
Third Quarter Results
• FedEx Corp. reported the following consolidated results for the third quarter:
• Revenue of $8.14bn, down 14% from $9.44bn the previous year
• Operating income of $182m, down 72% from $641m a year ago
• Operating margin of 2.2%, down from 6.8% the previous year
• Net income of $97m, down 75% from last year’s $393m
Operating income and margin declined due to revenue decreases, despite a 12% decline in expenses driven by lower fuel prices, significant volume related reductions in flight hours, labor hours and fuel consumption, and aggressive actions to reduce spending.
In February, FedEx Express began operations at its new Asia-Pacific hub located at Baiyun International Airport in Guangzhou, China. The strategically located hub is the company’s largest outside of the United States and positions FedEx to better serve customers doing business in China and the broader Asia-Pacific markets.
FedEx Ground Segment
For the third quarter, the FedEx Ground segment reported:
• Revenue of $1.79bn, up 4% from last year’s $1.72bn
• Operating income of $196m, up 15% from $170m a year ago
• Operating margin of 10.9%, up from 9.9% the previous year
FedEx Ground average daily package volume grew 2% year over year, primarily due to continued growth in the FedEx Home Delivery service. Yield improved 2% primarily due to increased extra services and higher base rates. FedEx SmartPost revenue increased 14%, while average daily volume grew 44% largely due to market share gains, including gains from DHL’s exit from the U.S. domestic package market.
Operating income and margin increased due to lower fuel prices, higher revenue and improved performance at FedEx SmartPost.
FedEx Freight Segment
For the third quarter, the FedEx Freight segment reported:
• Revenue of $914m, down 21% from last year’s $1.16bn
• Operating loss of $59m, down from operating income of $46m a year ago
• Operating margin of (6.5%), down from 4.0% the previous year
Less-than-truckload (LTL) average daily shipments decreased 13% year over year, as market share gains were more than offset by the worst LTL environment in decades. LTL yield declined 7%, due to lower fuel surcharges and the continuing effects of a competitive pricing environment resulting from excess capacity in the LTL industry.
The operating loss reflects the extraordinary decline in demand for freight services, the continued competitive pricing environment, costs related to the consolidation of our freight regional offices and severance charges from personnel reductions. These negative factors were partially offset by lower variable incentive compensation and continued stringent cost-containment initiatives, including the personnel and facility reductions.
FedEx Services Segment
FedEx Services segment revenue, which includes the operations of FedEx Office and FedEx Global Supply Chain Services, was down 10% year over year due to declines in printing and document service revenues.
