FedEx Takes an $89 Million Fall for the Year

A harsh fourth quarter adds to woes, as full fiscal year earnings are down by 44%. As with other carriers, “Record high fuel prices and the weak US economy dampened volume growth and substantially affected our bottom line,” claims Frederick W. Smith, FedEx Corp. chairman, president and CEO. Consolidated results in the fourth quarter showed revenues up at $9.87 billion over last year’s $91.5 billion, a gain of 8%. There were operating losses of $163 million in the quarter that resulted in a net loss of $241 million, down from last year’s net income of $610 million.

Looking to next year, Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer, notes, “The operating environment for fiscal 2009 is expected to be very difficult due to the weak US economy and extremely high fuel prices. However, we will focus on reducing expenses and remaining cash-flow positive, and will continue to take positive steps to improve the customer experience across our portfolio of services.”

While the company had growth in its Express and Ground segments—particularly with International Priority (IP) shipments—in the fourth quarter continuing declines in US domestic shipments offset any gains. Additionally in the quarter, FedEx took charges for minimizing the use of Kinko’s trade name. It will now be named FedEx Office. The decline comes from a reduction in value of goodwill that had resulted from the Kinko acquisition.

Feeling the effects of diminishing business and increasing fuel costs, for its full fiscal year, consolidated FedEx figures showed revenues of $38.0 billion, up 8% year-over-year, however its operating income of $2.08 billion was down some 37% from last year’s $3.28 billion.

IP package revenues were up 16% in the fourth quarter and revenues per package climbed by 11% year-over-year. However while revenues for the FedEx Express segment were up 9% overall for the quarter, operating income was $426 million, down from 2007’s $613 million by 31%.

Experiencing the same problems of diminished business and rising fuel prices and extra costs for legal defense around the issue of whether drivers are employees or independent contractors, FedEx Ground had revenues of $1.72 billion, which was up 8% year-over-year. Its operating income was $203 million, down from 2007’s $274 million by 26%. Growth in commercial business and the segment’s Home Delivery service helped increase its daily package volume by 6% with a 4% improvement in yield.

The Freight segment had revenues of $1.31 billion, which were up 5% over last year’s $125 billion. However, operating income was down 21% at $99 million compared to $125 million year-over-year. Playing a part in the income figures were factors such as last July’s FedEx Freight reduction in its fuel surcharge rate and increased use of and higher rates paid to third-party providers.

In surveying the fourth quarter and full fiscal year results, Fred Smith observed that, “Despite the challenging conditions, our team members continue their outstanding performance in support of our customers, as service levels and morale remain high. We will continue to reduce expenses to match volume and revenue expectations.”

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