Business News

FedEx Corp. Reports Third Quarter Earnings

Monday 21. March 2011 - FedEx Corp. (NYSE: FDX) today reported earnings of $0.73 per diluted share for the third quarter ended February 28. Excluding costs related to the previously announced combination of the company's FedEx Freight and FedEx National LTL operations, third quarter earnings were $0.81 per diluted share, compared to $0.76 per diluted share a year ago.

“Continued growth in the global economy is driving solid revenue gains in our transportation businesses,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “We expect strong demand for our services to boost our financial performance in our fourth quarter.”
Third Quarter Results
FedEx Corp. reported the following consolidated results for the third quarter:
Revenue of $9.66 billion, up 11% from $8.70 billion the previous year
Operating income of $393 million, down 6% from $416 million last year
Operating margin of 4.1%, down from 4.8% the previous year
Net income of $231 million, down 3% from $239 million a year ago
While yields grew in all transportation segments, unusually severe winter storms during the quarter disrupted operations, decreased shipping volume and increased costs, impacting year-over-year results by approximately $0.12 per diluted share. Earnings were also reduced by costs related to the January 30, 2011 combination of FedEx Freight and FedEx National LTL operations, including lease termination costs and severance expenses. The reinstatement of merit salary increases, increases in pension and medical costs, higher aircraft maintenance expenses and the full reinstatement of 401(k) company-matching contributions also impacted earnings.
Outlook
FedEx projects earnings to be $1.66 to $1.83 per diluted share in the fourth quarter and an adjusted $4.83 to $5.00 per diluted share for fiscal 2011. The company’s forecast assumes the current market outlook for fuel prices and continued moderate growth in the global economy. Earnings could be affected by the impact of the ongoing political turmoil in the Middle East and North Africa on fuel prices and the economy. Also, the near-term impact of the earthquake and tsunami in Japan on operational costs, shipping patterns and the global economy is currently uncertain. The annual guidance excludes FedEx Freight combination costs and a second quarter legal reserve. Including costs from the FedEx Freight combination and the legal reserve, earnings are expected to be $4.49 to $4.66 per diluted share for fiscal 2011. The company reported earnings of $1.33 per diluted share in last year’s fourth quarter. The capital spending forecast for fiscal 2011 remains $3.5 billion.
“Successful yield management initiatives helped drive significant revenue growth across our transportation segments in the third quarter, although results were dampened by severe winter storms and higher-than-expected fuel costs,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “Our FedEx Ground segment had record third quarter results. In addition, we are very pleased with the execution of the new FedEx Freight strategy, which is expected to drive FedEx Freight’s return to profitability in the fourth quarter. More broadly, we expect continued positive yield trends to improve revenues and margins in the fourth quarter and in fiscal 2012.”
FedEx Express Segment
For the third quarter, the FedEx Express segment reported:
Revenue of $6.05 billion, up 11% from last year’s $5.44 billion
Operating income of $178 million, down 33% from $265 million a year ago
Operating margin of 2.9%, down from 4.9% the previous year
FedEx International Priority (IP) average daily package volume increased 5%, led by exports from Asia and Europe. IP revenue per package grew 7% due to improved weight per package, rate increases and higher fuel surcharges. IP freight pounds increased 21% with revenue per pound up 3%. U.S. domestic average daily package volume increased 2% and revenue per package grew 5% due to higher fuel surcharges, rate increases and improved weight per package.
Operating income and margin were negatively impacted by increased aircraft maintenance, the reinstatement of certain employee compensation programs, higher employee benefits expenses and the negative impact of severe winter weather, which more than offset strong revenue growth.
During the quarter FedEx completed the acquisition of the logistics, distribution and express businesses of AFL Pvt. Ltd. and its affiliate, Unifreight India Pvt. Ltd. This acquisition provides FedEx more robust domestic transportation and added capabilities in India. The acquisition had no material impact on segment financial results for the quarter.
FedEx Ground Segment
For the third quarter, the FedEx Ground segment reported:
Revenue of $2.18 billion, up 14% from last year’s $1.91 billion
Operating income of $325 million, up 26% from $258 million a year ago
Operating margin of 14.9%, up from 13.5% the previous year
FedEx Ground average daily package volume grew 6% in the third quarter driven by increases in the business-to-business market and FedEx Home Delivery. Yield increased 5% primarily due to rate increases and higher fuel surcharges. FedEx SmartPost average daily volume increased 17% due to growth in e-commerce, gains in market share and the introduction of new service offerings. FedEx SmartPost yield increased 7% primarily due to lower postage costs resulting from increased deliveries to U.S. Postal Service final destination facilities and increased fuel surcharges.
Operating income and margin increased primarily due to higher package yield and volume. Current year results were also favorably impacted by one additional operating day.
FedEx Freight Segment
For the third quarter, the FedEx Freight segment reported:
Revenue of $1.12 billion, up 8% from last year’s $1.04 billion
Operating loss of $110 million, compared with an operating loss of $107 million a year ago
Operating margin of (9.8%), compared with (10.3%) the previous year
Less-than-truckload (LTL) yield increased 11% primarily due to yield management initiatives. LTL average daily shipments decreased 6% as a result of the yield management initiatives and the severe winter weather.
On January 30, 2011, FedEx Freight and FedEx National LTL combined operations, launching a new unified LTL freight network that offers customers the choice of two levels of service-FedEx Freight Priority and FedEx Freight Economy-from a single company. As a result of this combination, the segment incurred one-time costs of $43 million during the quarter and $130 million fiscal year-to-date due primarily to lease termination costs and severance expenses.
The operating loss in the quarter included the costs associated with the combination of the FedEx Freight and FedEx National LTL operations. Severe winter weather also significantly impacted results. The segment benefited from one additional operating day during the quarter.