FedEx Corp. reports Third Quarter Earnings
FedEx Corp. today reported earnings of USD 1.26 per diluted share for the third quarter ended February 29, compared to USD 1.35 per diluted share a year ago. Last year’s third quarter included an USD 0.08 per diluted share benefit from a reduction in the company’s effective tax rate.
“FedEx faces a challenging economic environment that includes persistently high oil prices, sluggish U.S. growth and continued concerns in the credit markets,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “We are managing our costs while positioning our portfolio of global transportation solutions to increase our profitability and returns once conditions improve.”
Third Quarter Results
FedEx Corp. reported the following consolidated results for the third quarter:
Revenue of USD 9.44 billion, up 10% from USD 8.59 billion the previous year
Operating income of USD 641 million, unchanged from a year ago
Operating margin of 6.8%, down from 7.5% the previous year
Net income of USD 393 million, down 6% from last year’s USD 420 million
Total combined average daily package volume in the FedEx Express and FedEx Ground segments grew 5% year over year for the quarter, due primarily to growth at FedEx Ground, FedEx International Priority® (IP) and an increase in international domestic express shipments resulting primarily from recent international acquisitions.
Third quarter operating margins declined, as higher fuel prices and a weak U.S. economy limited demand for U.S. domestic express, less-than-truckload (LTL) and copy and print services. The costs of retail service enhancement initiatives, increased marketing and technology expenses and higher expenses at FedEx Ground more than offset the benefits from lower variable compensation and favorable exchange rates.
Outlook
FedEx expects earnings to be USD 1.60 to USD 1.80 per diluted share in the fourth quarter compared to USD 1.96 a year ago. Last year’s fourth quarter results included a USD 0.06 per diluted share net benefit from a settlement with Airbus related to the A380 order cancellation. This outlook assumes no additional increases to current fuel prices and no further weakening in the economy. The capital spending forecast for the year has been reduced to approximately USD 3.0 billion.
“Our fourth quarter earnings outlook has been impacted by higher than anticipated fuel prices and a weak U.S. economy,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “Looking ahead to our fiscal 2009, we are expecting a continuation of fourth quarter trends, which would result in limited earnings growth next year. We are scrutinizing all expenses and investments to realign them with the current environment.”
FedEx Express Segment
For the third quarter, the FedEx Express segment reported:
Revenue of USD 6.13 billion, up 11% from last year’s USD 5.52 billion
Operating income of USD 425 million, up 8% from USD 395 million a year ago
Operating margin of 6.9%, down from 7.2% the previous year
IP package revenue grew 18% for the quarter, as IP revenue per package grew 10%, primarily due to higher fuel surcharges and favorable exchange rates. IP average daily package volume grew 6%, led by increases in volume originating in Latin America, the United States and Asia. U.S. domestic revenue per package increased 6% due to increased fuel surcharges and higher rate per pound, while package volume declined by 2%.
Operating income and margin were negatively impacted by continued softness in the U.S. economy, increased intercompany charges from the FedEx Services segment and the ongoing cost of investments in the company’s China domestic express service, more than offsetting the benefits from the timing lag of the fuel surcharge, one additional operating day and exchange rates.
FedEx Ground Segment
For the third quarter, the FedEx Ground segment reported:
Revenue of USD 1.72 billion, up 13% from last year’s USD 1.52 billion
Operating income of USD 170 million, down 13% from USD 196 million a year ago
Operating margin of 9.9%, down from 12.9% the previous year
FedEx Ground average daily package volume grew 7% year over year in the third quarter due to increased commercial business and the continued strong growth of its FedEx Home Delivery service. Yield improved 3% primarily due to fuel surcharges, extra service revenues and the impact of general rate increases.
Operating income and margin were lower due to increased intercompany charges from the FedEx Services segment and costs to enhance and defend the independent contractor model, partially offset by the benefit from one additional operating day.
FedEx Freight Segment
For the third quarter, the FedEx Freight segment reported:
Revenue of USD 1.16 billion, up 5% from last year’s USD 1.10 billion
Operating income of USD 46 million, down 8% from USD 50 million a year ago
Operating margin of 4.0%, down from 4.5% the previous year
LTL shipments declined 3% year over year, as demand for these services continues to be restrained by the weak U.S. economy, although average daily LTL shipments improved sequentially throughout the quarter. LTL yield improved 5% year over year as higher rates, including the impact of the January rate increase, more than offset the July 2007 fuel surcharge reduction.
Operating income and margin decreased in the quarter due to the net impact of higher fuel costs and the fuel surcharge reduction, higher utilization of purchased transportation and fewer long-haul LTL shipments.
FedEx Services Segment
Revenue for the FedEx Services segment, which includes the operations of FedEx Kinko’s and FedEx Global Supply Chain Services, was up 1% year over year. Revenue generated from new locations and higher package acceptance fees offset lower copy product revenues at FedEx Kinko’s. FedEx Services expenses, which are reallocated to the transportation segments net of revenues, increased year over year due to higher marketing and information technology costs and increased net operating costs at FedEx Kinko’s associated with expansion and service improvement activities.
FedEx Kinko’s has opened 252 centers fiscal year-to-date as part of its plan to open 300 new centers this year. Given the weak economic outlook, FedEx Kinko’s will significantly slow its rate of expansion in fiscal 2009, to about 70 new locations.
Corporate Overview
FedEx Corp. (NYSE: FDX) provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenues of USD 37 billion, the company offers integrated business applications through operating companies competing collectively and managed collaboratively, under the respected FedEx brand. Consistently ranked among the world’s most admired and trusted employers, FedEx inspires its more than 290,000 employees and contractors to remain “absolutely, positively” focused on safety, the highest ethical and professional standards and the needs of their customers and communities. For more information, visit news.fedex.com.
Additional information and operating data are contained in the company’s annual report, Form 10-K, Form 10-Qs and third quarter fiscal 2008 Statistical Book. These materials, as well as a Webcast of the earnings release conference call to be held at 8:30 a.m. EDT on March 20 are available on the company’s Web site at www.fedex.com/us/investorrelations. A replay of the conference call Webcast will be posted on our Web site following the call.
Certain statements in this press release may be considered forward-looking statements, such as statements relating to management’s views with respect to future events and financial performance. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from historical experience or from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, economic conditions in the global markets in which we operate, legal challenges or changes related to FedEx Ground’s owner-operators, new U.S. domestic or international government regulation, the impact from any terrorist activities or international conflicts, our ability to effectively operate, integrate and leverage acquired businesses, the impact of changes in fuel prices and currency exchange rates, our ability to match capacity to shifting volume levels and other factors which can be found in FedEx Corp.’s and its subsidiaries’ press releases and filings with the SEC.
