FedEx Freight Revenues Climb 14% in Third Quarter

FedEx Corp. has reported earnings of $0.76 per diluted share for the third quarter ended February 28, compared to $0.31 per diluted share a year ago. For the third quarter, the company reported revenue of $8.70 billion, up 7% from $8.14 billion a year ago; operating income of $416 million, up 129% from $182 million last year; operating margin of 4.8%, up from 2.2% the previous year; and net income of $239 million, up 146% from last year's $97 million

Revenue and earnings increased as a result of higher shipment growth, particularly in international express and at FedEx Ground. Strict cost controls also benefited results. Increased net fuel costs, an operating loss at FedEx Freight and the partial reinstatement of certain employee compensation programs impacted the quarter’s results. One fewer operating day year over year at each of the transportation segments also negatively affected results.

FedEx expects earnings per share of $1.17 to $1.37 per diluted share in the fourth quarter, and $3.60 to $3.80 for fiscal 2010, which reflect the current market outlook for fuel prices and a continued modest recovery in the global economy. Previously, the company expected earnings per share of $3.45 to $3.75 for fiscal 2010. The company reported a loss of $2.82 per share in last year's fourth quarter, which included $3.46 per share of charges primarily related to the impairment of goodwill. The company's capital spending forecast for fiscal 2010 is now $2.9 billion, up from $2.6 billion, due to additional investments in Boeing 777 aircraft.

“In the fourth quarter, we expect to grow our revenue and earnings through increased demand for our superior services. Yield management will continue to be a top priority across all of our operating companies,” says Alan Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “With our improved performance and outlook, we are reinstating various employee compensation programs, which will dampen earnings growth in the fourth quarter and fiscal year 2011. We are also continuing to invest in long-term projects that improve service and reduce operating costs, such as long-range, fuel-efficient 777 freighters.”

FedEx Freight Segment
For the third quarter, the FedEx Freight segment reported:
● Revenue of $1.04 billion, up 14% from last year’s $914 million
● Operating loss of $107 million, compared to an operating loss of $59 million a year ago
● Operating margin of (10.3%), compared to (6.5%) the previous year
Less-than-truckload (LTL) average daily shipments increased 26% and LTL yield declined 8% year over year due to the effects of discounted pricing. Operating loss increased in the quarter due to lower yields and higher purchased transportation costs.
FedEx Freight and FedEx National LTL implemented a 5.9% general rate increase on February 1, 2010 and are aggressively pursuing opportunities to increase yields.

FedEx Express Segment
For the third quarter, the FedEx Express segment reported:
● Revenue of $5.44 billion, up 8% from $5.05 billion a year ago
● Operating income of $265 million, up from $45 million last year
● Operating margin of 4.9%, up from 0.9% the previous year
Led by exports from Asia, FedEx International Priority (IP) average daily package volume increased 18% and IP freight revenue increased 49%. U.S. domestic average daily package volume grew 1%, while revenue per package declined slightly.
Operating profit and margin improvements were driven by volume and revenue growth, particularly in higher-margin IP package and IP freight services, as well as continued actions to control spending.

FedEx Ground Segment
For the third quarter, the FedEx Ground segment reported:
● Revenue of $1.91 billion, up 7% from last year's $1.79 billion
● Operating income of $258 million, up 32% from $196 million a year ago
● Operating margin of 13.5%, up from 10.9% the previous year
FedEx Ground average daily package volume grew 5% year over year, primarily due to growth in the business-to-business market. Yield improved 2% primarily due to higher package weight. FedEx SmartPost average daily volume grew 46% due primarily to market share gains.
Operating income and margin increased due to higher package volume and yield, lower self-insurance expenses and improved performance at FedEx SmartPost.

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