FedEx profits jump in first quarter on volume growth

FedEx profits jump in first quarter on volume growth

Volume growth and cost-cutting initiatives have seen profits jumping at FedEx in the first quarter of its fiscal year. The Memphis-based integrator said yesterday that revenue was up 6% year-on-year in the three months up to the end of August, to $11.7bn, while net income grew 24% to $606m.

FedEx said its volume growth, particularly for ground services and domestic express services, helped counter increased aircraft maintenance costs.

Frederick W Smith, the FedEx Corp chairman, president and CEO, said his firm was off to an “outstanding start” in its 2015 fiscal year.

“More customers are relying on FedEx because they appreciate the competitive advantages provided by our broad portfolio of solutions,” he claimed.

FedEx, which has just announced a 4.9% rate increase for its core US business from January, is expecting “strong” earnings growth in the rest of the year. The company reaffirmed forecasts of full-year earnings as between $8.50 and $9.00 per diluted share.

Earnings per share in the first quarter was $2.10, up 37% from last year’s $1.53 per share.

Divisions

Among the divisions, FedEx Express grew its revenue 4% in the quarter to $6.86bn, with operating income up 35% to $369m. Growth in revenue came from higher domestic US package volumes and improved international export package yields.

US domestic package volume grew 5%, with 8% growth in overnight volumes and deferred box volumes, although envelope volumes were lower. International Priority volumes grew 1% in the quarter, while International Economy volumes increased 3%.

FedEx Ground saw its revenue up 8% to $2.96bn with daily volume up 6% in the quarter thanks primarily to growth in e-commerce. Operating income grew 13% year-on-year to $545m.

The FedEx SmartPost service, the ground service operating using USPS last mile delivery, was hit by the loss of a major customer, which saw volume down 10% in the quarter, although revenue per package grew 10% thanks to an “improved customer mix” partially offset by higher postage rates.

Competition for e-commerce customers could prove more difficult in the rest of the financial year for FedEx Ground with its ground rates going up 4.9% from January, while the Postal Service lowers its rates.

FedEx Freight saw revenue up 13% to $1.61bn in the quarter, with operating income up 70% to $168m, with improvements in the less-than-truckload business and “solid” cost-cutting efforts.

“FedEx reported strong first quarter results, as all three of our transportation segments drove higher revenues and improved profitability year over year,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “Our profit improvement programs are progressing as planned and we continue to expect strong earnings growth this year.”

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