FedEx reports first quarter earnings

FedEx Corp. reported earnings of $0.58 per diluted share for the first quarter ended 31 August, compared to $1.23 per diluted share a year ago. “Better-than-expected FedEx International Priority volume, decisive management actions and our dedicated team members helped drive financial performance above our initial expectations in the first quarter,” said Frederick W. Smith, FedEx Corp. chairman, president and CEO. “For more than a year, we have vigilantly managed costs without sacrificing service, invested wisely and minimised job losses so that FedEx will emerge a stronger, more profitable company as the global economic recovery takes hold.”

First quarter results

FedEx Corp. reported the following consolidated results for the first quarter:

• Revenue of $8.01bn, down 20% from $9.97bn a year ago
• Operating income of $315m, down 50% from $630m last year
• Operating margin of 3.9%, down from 6.3% the previous year
• Net income of $181m, down 53% from last year’s $384m

Revenue and profitability continued to be negatively affected year over year by the global recession. Fuel was also a significantly negative factor in the quarter, primarily due to the substantial decline in fuel surcharges year over year. Strict cost controls and one additional operating day at each of the transportation segments benefited results.

Outlook

FedEx reiterates its earnings expectation of $0.65 to $0.95 per diluted share in the second quarter, which reflects the current outlook for fuel prices and a continued modest recovery in the global economy. A substantial decline is expected from $1.58 per diluted share a year ago, when the company significantly benefited from rapidly declining fuel prices and the timing lag that exists between when fuel prices change and when indexed fuel surcharges automatically adjust. The company’s capital spending forecast remains $2.6bn.

“While we see signs of improvement in the economy, the year-over-year comparisons will remain very difficult for our second quarter,” said Alan B. Graf Jr., FedEx Corp. executive vice president and chief financial officer. “We remain focused on managing our expenses and generating positive cash flow.”

2010 rate increase

FedEx Express will increase shipping rates by an average of 5.9% for U.S. domestic and U.S. export services, effective 4 January, 2010. The rate increase will be partially offset by adjusting the fuel price at which the fuel surcharge begins, reducing the fuel surcharge by two percentage points. Additional changes will be made to other FedEx Express surcharges, details of which can be found at www.fedex.com/us/2010rates. The FedEx Ground and FedEx SmartPost rate and surcharge changes for 2010 will be announced later this year.

FedEx Express segment

For the first quarter, the FedEx Express segment reported:

• Revenue of $4.92bn, down 23% from $6.42bn a year ago
• Operating income of $104m, down 70% from $345m last year
• Operating margin of 2.1%, down from 5.4% the previous year

US domestic package revenue declined 22%, driven by a 23% drop in revenue per package due to lower fuel surcharges, rate per pound and weight per package. U.S. domestic package volume grew slightly. FedEx International Priority (IP) package revenue declined 22%. IP revenue per package declined 20% due to lower fuel surcharges, unfavourable exchange rates and lower package weights, while IP package volume fell 4%. Results were negatively impacted by continued global economic weakness and substantially lower fuel surcharges, partially offset by gains from DHL’s exit from the US domestic package market. Expenses improved due to lower fuel prices and consumption, continued reductions in flight hours, labour hours, purchased transportation and other aggressive actions to control spending.

FedEx Ground segment

For the first quarter, the FedEx Ground segment reported:

• Revenue of $1.73bn, down 2% from last year’s $1.76bn
• Operating income of $209m, up 7% from $196m a year ago
• Operating margin of 12.1%, up from 11.1% the previous year

FedEx Ground average daily package volume was down 1% compared to the prior year. Yield decreased 3% primarily due to lower fuel surcharges. FedEx SmartPost average daily volume grew 73% largely due to market share gains, including gains from DHL’s exit from the U.S. domestic package market. FedEx SmartPost yield decreased 34% due to changes in customer and service mix.

FedEx Freight segment

For the first quarter, the FedEx Freight segment reported:

• Revenue of $982m, down 27% from last year’s $1.35bn
• Operating income of $2m, down 98% from $89m a year ago
• Operating margin of 0.2%, down from 6.6% the previous year

Less-than-truckload (LTL) average daily shipments decreased 14% and yield decreased 13% year over year, reflecting the continued weak economy and resulting excess industry capacity, as well as an increasingly competitive pricing environment. LTL yield was also negatively impacted by lower fuel surcharges. Average daily LTL shipments improved sequentially month over month throughout the quarter.

Operating income and margin decreased in the quarter due to the lower average daily LTL shipments and the competitive pricing environment, partially offset by cost-reduction actions.

FedEx Services segment

FedEx Services segment revenue for the first quarter, which included the operations of FedEx Office and FedEx Global Supply Chain Services, was down 12% year over year, primarily due to declines in copy product revenues.