FedEx to hike US shipping rates as slow economy hits results

FedEx Corp. has announced plans to increase shipping rates for FedEx Express services in the US by a net average of 3.9% from January 2, 2012. The rate rise for domestic shipping, export and import services in the US involves a 5.9% price increase partially offset by a 2% reduction in fuel surcharges.

The company said pricing changes for its FedEx Ground and FedEx SmartPost services would be announced later this year.

FedEx Freight raised its prices 6.75% earlier this month.

The price changes came as FedEx Corp reported increased earnings for the first quarter of its 2011 fiscal year, ending August 31.

The Memphis-based company achieved a $10.2bn revenue for the quarter – up 11% year-on-year – and an operating income of $737m, up 17% compared to the same period last year.

FedEx said slow global economic growth that affected FedEx Express volumes was countered by improved results at its FedEx Ground and FedEx Freight divisions.

“Revenue and earnings increased significantly in the quarter due to strong FedEx Ground performance, improved FedEx Freight results and the continued success of the company’s yield management actions,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer.

“While the economic environment is challenging, we remain confident FedEx will improve earnings, margins and cash flows this fiscal year.”

FedEx is mounting a buyback of its common shares, planning to repurchase around 5.7m shares subject to market conditions.

Regarding the slowing global economy and impact on FedEx Express, Smith said his company had taken action to respond to slowing demand, particularly for international express shipments. Reducing the number of aircraft operating in the service was one way that FedEx would respond to lower demand, he said.

Divisions

Among the FedEx divisions, FedEx Express saw revenue up for the quarter by 12% to $6.59bn, but operating income down 19% to $288m for the three months, with margins narrowing from 6% seen this time last year to 4.4%.

Express package volume declines accelerated during the quarter, FedEx said, due to slowing global economic growth, particularly in more premium services.

FedEx Ground saw its revenue up 16% for the quarter to $2.28bn, with operating income up 42% to $407m, and margins up from 14.6% in last year’s first quarter to 17.9%.

Daily package volumes in FedEx Ground increased 5% in the quarter, driven by business-to-business demand and the FedEx Home Delivery service. SmartPost volumes grew 29% thanks to e-commerce volumes.

FedEx Freight achieved a 6% increase in revenue, to $1.33bn for the quarter, with operating income at $42m for the quarter, compared to a $16m operating loss seen this time last year. The division has been benefiting from January’s merging of FedEx Freight and FedEx National LTL.

Commenting on the overall results of the company, Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer, said growth in the US and global economy was less than the company had expected.

“While FedEx Ground and FedEx Freight achieved improved operating results despite lower than expected growth, the more rapid decline in demand for FedEx Express services, particularly from Asia, outpaced our ability to reduce operating costs,” said Graf.

“We have slightly reduced our earnings forecast to reflect current business conditions and are aggressively working to adjust our cost structure to match demand levels.”

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