Despite a Slower US Economy Income is Higher for FedEx

Noting that the company increased its revenue and earnings against what he calls a “sluggish US economy,” FedEx Corp. chairman. president and CEO, Frederick W. Smith, said, “Outside the US the economy is generally solid, contributing to the growth in our international express shipments. I continue to believe that FedEx will, over the long-term, reap the rewards of our strategy of investing in key growth markets and strengthening and expanding our worldwide networks.”

General consolidated numbers: Overall revenues were up 8%, at $9.20 billion this year compared to last year’s $8.55 billion. Operating income was up at $814 million, plus 4%, over $784 million year over year. Net income was up 4% at $494 million over $475 million in 2006. However, operating margins were down from last year’s 9.2% at 8.8%.

FedEx has realigned its Kinko operations whose income was flat for the quarter. It is now in the FedEx Services segment that also includes FedEx Global Supply Chain Services and FedEx Customer Information Services. The company notes that revenue from Kinko copy products declined, offsetting higher package acceptance fees and income from newer locations. The company opened 90 centers during the quarter.

International business helped FedEx Express grow its revenues 4% from last year’s $5.64 billion to $5.89 billion. Operating income grew 9% to $519 million from $475 million. Operating margin for the quarter was 8.8% this year compared to last year’s 8.4%. International Priority shipments grew 9% for the quarter, while domestic US domestic package volumes and revenues declined 1%. Average daily international package shipment volumes grew 6% in the quarter.

FedEx Ground average daily package volumes grew 10% in the quarter. The gain was attributed to growth in commercial business and continued strong FedEx Home Delivery service. For the quarter, the segment had revenues of $1.62 billion up 14% from last year’s $1.42 billion. Operating incomes was $190 million, a climb of 19% from $159 million year over year. Operating margins this year were 11.7%. They were 11.2% last year.

FedEx Freight and its recently acquired Watkins Motor Freight—rebranded as FedEx National LTL—reduced its standard regional less than truckload (LTL) surcharge by 25%, which had a negative effect on revenues for the segment. The expectation is that in the long run the reduction will lend competitive strength to FedEx Freight and drive incremental volumes. Despite the reduction, revenues for the segment were $1.23 billion, up 22% from last year’s $1.01 billion. However, operating income declined 30% from $150 million last year to $105 million this year. Last year’s operating margin was 14.8%. This year it was 8.5%.

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