Profits double as FedEx reveals Q1 results
Profits at FedEx almost doubled during Q1 of its financial year, compared to the same period for 2009. The express giant said the upturn in fortunes was down to stronger demand prompted by the improving global economic climate.
According to the latest results, operating income stood at $628m for Q1, up from $315m year-on-year – a rise of 99%.
For the quarter, which ended 31 August, FedEx recorded revenue at $9.46bn, up 18% from $8.01bn the previous year. Furthermore, operating margin stood at 6.6%, up from 3.9% the previous year; net income rose to $380m, up 110% from $181m.
FedEx reported earnings of $1.20 per diluted share for the first quarter, up 107% from $0.58 per diluted share a year ago.
“Strong demand for our services resulted in higher volumes and better revenue per shipment at FedEx Express and FedEx Ground,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “This increased demand comes from improved global economic conditions and the benefit provided by the strength and flexibility of our unparalleled global networks, which we’ve improved during the downturn to deliver even more reliability and value to our customers.”
Earnings increased as a result of strong FedEx International Priority (IP) growth at FedEx Express, continued growth at FedEx Ground and a benefit from the net impact of higher fuel surcharges. The reinstatement of certain employee compensation programmes, higher pension, medical and aircraft maintenance expenses, and an operating loss at FedEx Freight dampened the quarter’s solid results.
In terms of outlook for the rest of the year, a company spokesman said: “FedEx projects earnings to be $1.15 to $1.35 per diluted share in the second quarter and $4.80 to $5.25 per diluted share for fiscal 2011, up from the company’s previous estimate of $4.60 to $5.20 per diluted share. This guidance excludes any FedEx Freight combination costs, and also assumes the current market outlook for fuel prices and continued moderate growth in the global economy. The company reported earnings of $1.10 per diluted share in last year’s second quarter. The capital spending forecast for fiscal 2011 has increased to $3.5 billion, primarily due to anticipated aircraft purchases for continued international growth.
“The earnings ranges above exclude the costs from the FedEx Freight combination. Including the expected cost of this program, $0.14 to $0.18 per diluted share for the second quarter and $0.30 to $0.40 per diluted share for fiscal 2011, earnings are expected to be $0.97 to $1.21 per diluted share for the second quarter and $4.40 to $4.95 per diluted share for fiscal 2011. The actual cost will be dependent on the number and timing of employee departures and lease terminations.”
Alan B Graf Jr, FedEx Corp. executive vice president and chief financial officer, said: “We expect continued strong demand for our package transportation services through at least December. Shippers of high value-added goods, especially in the technology sector, know that we have unmatched air express capacity to deliver quickly and reliably for them, even when demand surges. We expect the yield improvement initiatives we have underway, coupled with the current high utilisation of our planes, vehicles and facilities, will drive higher earnings, margins and returns.”
FedEx Express:
For the first quarter, the FedEx Express segment reported: revenue of $5.91bn, up 20% from last year’s $4.92bn; operating income of $357m, up 243% from $104m a year ago; and an operating margin of 6.0%, up from 2.1% the previous year.
IP average daily package volume increased 19%, led by exports from Asia. IP revenue per package grew 4% primarily due to higher fuel surcharges and weight per package. IP Freight pounds increased 41%, led by exports from Latin America, Asia and the US, with revenue per pound up 10%. US domestic revenue per package grew 7% due to higher fuel surcharges, weight per package and rate per pound, while average daily package volume increased 3%.
Operating profit and margin improvements were driven by volume and yield growth, particularly in higher margin IP package and freight services, along with a benefit from the net impact of higher fuel surcharges. Results also include higher compensation, benefits and aircraft maintenance expenses.
FedEx Express added a tenth daily scheduled transpacific flight in August, and an eleventh such flight earlier this week, providing needed capacity between Asia and the United States. There are currently six Boeing 777Fs operating on strategic, long-range international routes, providing best-in-market cut-off times. Two additional Boeing 777Fs, delivered in August, are scheduled to go into international service in October.
FedEx Ground:
For the first quarter, the FedEx Ground segment reported: revenue of $1.96bn, up 13% from last year’s $1.73bn; operating income of $287m, up 37% from $209m a year ago; and an operating margin of 14.6%, up from 12.1% the previous year.
FedEx Ground average daily package volume grew 7% in the first quarter driven by increases in the business-to-business market and FedEx Home Delivery. Yield increased 5% primarily due to higher fuel surcharges and package weight. FedEx SmartPost average daily volume increased 9%, with net yield increasing 19%. The increase in FedEx SmartPost yield was primarily due to lower postage costs as a result of increased deliveries to USPS final destination facilities and increased fuel surcharges.
Operating income and margin increased due to higher package yield and volume, as well as a benefit from the net impact of higher fuel surcharges and lower self-insurance expenses.
