FedEx sees end of downturn in sight
FedEx offered more encouraging evidence of a business recovery in the US yesterday, announcing that its third- and fourth-quarter earnings would either be met or exceeded.
The Memphis-based package delivery company said business has been particularly robust for its ground services and added that costs had been reduced at its core air express unit.
FedEx has also received a boost from its seven-year, Dollars 7.2bn agreement to handle express mail for the US post office. “The additional traffic being transported for the US Postal Service . . . has helped offset current softness in the express package business,” it said.
The news helped bump shares of FedEx – which have risen more than 55 per cent since the September 11 grounding of US aircraft – Dollars 1 to Dollars 54.40 in early-afternoon trading. It also lent support to views that the US economy was set to recover in the second half of 2002.
FedEx ships high-end goods for large manufacturers and technology companies. An increase in shipments indicates more inventories are being replenished and overall, more activity in those sectors. Volume at FedEx Ground, for instance, is expected to rise 20 per cent in the third quarter with yields increasing 5 per cent.
Still, the company acknowledged that business in the more important air express segment “continues to be affected by economic weakness”. Air express deliveries still account for about three-quarters of the Dollars 20bn annual in group revenues.
Over the past several years, companies have cut back on their overnight shipping needs, preferring instead services that deliver parcels at a specific time and at a much cheaper price. In January, FedEx raised rates for its air and ground services by 3.5 per cent.
FedEx has countered the bleak trend in its air express business by expanding into other services, such as home deliveries, logistics and freight forwarding.
This month, the company reached 90 per cent coverage of the US in home deliveries, encroaching upon territory covered by United Parcel Service and the US post office.
Analysts say the company is beginning to see the fruits of its overhaul, which essentially consolidated various units into three operating groups with one salesforce.
“We believe one of the most important aspects of the new FedEx corporation is our firm belief in operating as independent companies focused on specific segments of the market but competing together as one,” said Fred Smith, founder, chairman and chief executive of FedEx.
FedEx said earnings for the third quarter were expected to meet or exceed previous estimates of 25-35 cents per share. It also affirmed that fourth-quarter earnings would be 70-80 cents. Wall Street is expecting 34 cents and 75 cents respectively.
