FedEx gains from US bail-out
A Dollars 116m share of the US government’s airline bail-out programme, coupled with the first contributions from a contract with the US Postal Service, allowed Federal Express to report a 26 per cent increase in second-quarter earnings.,
Volumes at FedEx’s core domestic express delivery business fell by 10 per cent over the quarter. The business was badly affected by a decline in shipments of high-technology components, but express profits rose 14 per cent thanks to the bail-out funds, a Dollars 16.5m tax settlement and the new USPS business.
The group’s net income rose from Dollars 194m to Dollars 245m, lifting earnings per share from 67 cents to 81 cents. A 10 per cent drop in fuel costs helped, as did cost controls at its ground delivery operation.
Alan Graf, chief financial officer, said FedEx was reaping the benefits of a diversification strategy started four years ago to reduce its dependence on the overnight market, which is more prone to economic downturns. “Our diversification strategy is paying off handsomely,” he said, adding that the ground and American Freightways businesses acquired in the last four years contributed Dollars 127m to operating income of Dollars 433m in the quarter.
FedEx’s seven-year contract with the USPS, under which it carries some express mail for the postal service in return for being allowed to place its parcel drop boxes in post offices, launched “smoothly” in the quarter, Mr Graf said.
The USPS had agreed to increase its volumes under the contract for a trial 10-month period, he added. He would not give details of revenues or profits from the contract, but said margins were “very nice”.
FedEx will increase prices by an average of 3.5 per cent on January 7, and said the pricing environment in the industry remained “rational”. The third quarter would be “challenging”, Mr Graf said, as FedEx would not have the government assistance to offset lower express volumes. The group now expects third-quarter earnings of 25-35 cents per share, before a stronger fourth quarter with 70-80 cents.
