Business News

FedEx Corp. Reports Third Quarter Earnings

Thursday 19. March 2009 - Additional Cost-Reduction Actions Announced

FedEx Corp. (NYSE: FDX) today reported earnings of $0.31 per diluted share for the third quarter ended February 28, compared to $1.26 per diluted share a year ago.

“Our financial performance was sharply lower during the quarter due to the global recession,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “While we are gaining market share in all of our transportation segments, the downturn in our industry and the severity and expected duration of the recession require that we take additional actions.”

Cost-Reduction Actions

In light of the continuing deterioration in the global economy, FedEx will implement additional cost-reduction initiatives, both in the U.S. and internationally. These measures include the following:

Network capacity reductions at FedEx Express and FedEx Freight
Further reduction of personnel and work hours
Expansion of previously announced pay actions to include non-U.S. employees, where permitted
Streamlining of information technology systems and other internal processes
Additional reductions in other spending categories
Increased economies in the acquisition of goods and services

These cost-reduction actions are expected to result in fourth quarter charges of approximately $100 million, excluding any potential asset impairment charges. For fiscal 2010, these actions are targeted to reduce expenses by approximately $1.0 billion.

“Our goal when we implemented compensation reductions in January for U.S. salaried personnel was to both protect our business and minimize the loss of jobs,” said Smith. “With industrial production and global trade trends worsening since last quarter, we are applying these additional measures to continue to secure as many of our jobs as possible during this downturn. We remain focused on providing outstanding service, and will ensure that our actions do not impede our industry-leading customer experience.”

Outlook

FedEx expects earnings to be $0.45 to $0.70 per diluted share in the fourth quarter, excluding any one-time charges. Earnings in last year’s fourth quarter were $1.45 per diluted share, excluding a charge of $891 million ($696 million, net of tax, or $2.22 per diluted share) related predominately to non-cash asset impairment charges associated with the decision to minimize the use of the Kinko’s trade name and a reduction in the value of the goodwill resulting from the Kinko’s acquisition. This outlook assumes continued weak global macroeconomic conditions and stable fuel prices.

Third Quarter Results

FedEx Corp. reported the following consolidated results for the third quarter:
Revenue of $8.14 billion, down 14% from $9.44 billion the previous year
Operating income of $182 million, down 72% from $641 million a year ago
Operating margin of 2.2%, down from 6.8% the previous year
Net income of $97 million, down 75% from last year’s $393 million
Operating income and margin declined due to revenue decreases, despite a 12% decline in expenses driven by lower fuel prices, significant volumerelated reductions in flight hours, labor hours and fuel consumption, and aggressive actions to reduce spending.

In February, FedEx Express began operations at its new Asia-Pacific hub located at Baiyun International Airport in Guangzhou, China. The strategically located hub is the company’s largest outside of the United States and positions FedEx to better serve customers doing business in China and the broader Asia-Pacific markets.

FedEx Ground Segment

For the third quarter, the FedEx Ground segment reported:

Revenue of $1.79 billion, up 4% from last year’s $1.72 billion
Operating income of $196 million, up 15% from $170 million a year ago
Operating margin of 10.9%, up from 9.9% the previous year

FedEx Ground average daily package volume grew 2% year over year, primarily due to continued growth in the FedEx Home Delivery service. Yield improved 2% primarily due to increased extra services and higher base rates. FedEx SmartPost revenue increased 14%, while average daily volume grew 44% largely due to market share gains, including gains from DHL’s exit from the U.S. domestic package market.

Operating income and margin increased due to lower fuel prices, higher revenue and improved performance at FedEx SmartPost.

FedEx Freight Segment

For the third quarter, the FedEx Freight segment reported:

Revenue of $914 million, down 21% from last year’s $1.16 billion
Operating loss of $59 million, down from operating income of $46 million a
year ago
Operating margin of (6.5%), down from 4.0% the previous year

Less-than-truckload (LTL) average daily shipments decreased 13% year over year, as market share gains were more than offset by the worst LTL environment in decades. LTL yield declined 7%, due to lower fuel surcharges and the continuing effects of a competitive pricing environment resulting from excess capacity in the LTL industry.

The operating loss reflects the extraordinary decline in demand for freight services, the continued competitive pricing environment, costs related to the consolidation of our freight regional offices and severance charges from personnel reductions. These negative factors were partially offset by lower variable incentive compensation and continued stringent cost-containment initiatives, including the personnel and facility reductions.

FedEx Services Segment

FedEx Services segment revenue, which includes the operations of FedEx Office and FedEx Global Supply Chain Services, was down 10% year over year due to declines in printing and document service revenues.