FedEx fiscal 2Q net was flat but revenue grew with 10 percent

FedEx posted net income of $245 million, or 81 cents per diluted share, flat with the previous year's second quarter. Revenue climbed 10% to $5.67 billion from $5.14 billion.

Last year's second quarter included $17 million ($0.03 per share, net of tax) of operating income from the favourable resolution of a state sales tax matter.

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

Revenue of $5.67 billion, up 10% from $5.14 billion the previous year
Operating income of $427 million, down 1% from $433 million a year ago
Net income of $245 million, unchanged from last year's $245 million
Total average daily package volume at FedEx Express and FedEx Ground grew a combined 13% year over year for the quarter. FedEx Ground continued its growth momentum, as its volume grew 25%, while FedEx Express package volume grew 5%.

"This was a very good quarter for FedEx, as our diverse portfolio of services enabled us to manage well through the current difficult economic environment," said Alan B. Graf, Jr., executive vice president and CFO. "Our Ground and Freight operations are showing strong revenue and profit momentum, while Express continues to achieve solid growth in its International operations and excellent results from its U.S. Postal Service transportation agreement."

Given the weaker than expected U.S. economic growth in the manufacturing and wholesale sectors, earnings are expected to be $0.45 to $0.55 per diluted share in the third quarter, up from $0.39 per diluted share a year ago. Management believes that its $2.77 per share forecast for fiscal 2003 is still achievable with a modest economic recovery in the company's fiscal second half. Capital expenditures for fiscal 2003 are expected to be $1.7 billion, a reduction of $200 million from the initial forecast.

During the quarter, the company acquired 475,000 FedEx shares under its share repurchase programs. A total of 5.375 million shares remain under existing share repurchase authorizations.

In November, the company announced a 3.5% average price increase on FedEx Express U.S. and U.S. export shipment services, and a 3.9% average price increase on FedEx Ground services. These increases will be effective January 6, 2003.

For the 2Q, FedEx Express reported:

Revenue of $4.10 billion, up 7% from last year's $3.81 billion
Operating income of $228 million, down 26% from $309 million a year ago
FedEx International Priority(R) (IP) volume grew 13% in the second quarter, again led by exports from Asia where volume increased 27% year over year. FedEx IP package yield grew 2% for the quarter. The second quarter U.S. domestic express package volume growth rate declined less than 1%, similar to the first quarter, once the effects of the September 11, 2001 attacks are excluded. U.S. domestic express package yield for the quarter improved slightly.

FedEx Express operating margin declined from 8.1% last year to 5.6% this year, primarily due to increases in benefits, maintenance and net fuel costs. The company expects the growth rate in maintenance and net fuel costs to abate in the second half of the fiscal year.

For the 2Q, FedEx Ground reported:

Revenue of $863 million, up 27% from last year's $677 million
Operating income of $135 million, up 69% from $80 million a year ago
FedEx Ground average daily package volume grew 25% in the second quarter, with about one-third of the total growth in the quarter coming from FedEx Home Delivery. Yield per package increased 2%. Operating margin improved to 15.6% for the quarter, compared to 11.8% a year ago, due to continued strong revenue growth, excellent productivity and outstanding cost management.

FedEx Home Delivery became profitable during the quarter, significantly ahead of schedule. Nearly 31,000 shippers now use FedEx Home Delivery, which is more than double the number a year ago. The number of shippers is expected to continue growing now that the service is able to provide evening, weekend, and day- and time-specific delivery options to nearly 100% of U.S. residences.

For the 2Q, FedEx Freight reported:

Revenue of $547 million, up 12% from last year's $487 million
Operating income of $56 million, up 19% from $47 million a year ago
FedEx Freight average daily shipments for the quarter were up 5% year over year, while yield increased 8% and weight per shipment declined 1%. Second quarter results included $4 million in rebranding expenses. Despite these additional expenses, the FedEx Freight operating margin was 10.2% in the second quarter, compared with a 9.8% operating margin a year ago.

During the quarter, FedEx Freight expanded its reach and now offers less-than-container-load (LCL) service to and from Europe in addition to its industry-leading regional less-than-truckload (LTL) freight services.