FedEx Margins Beat Its Forecast

March 30, 2006
The corporations operating income of $713 million was up 29%, year over year while its margin was 8.9%, compared with last years third quarter margin

The corporation’s operating income of $713 million was up 29%, year over year while its margin was 8.9%, compared with last year’s third quarter margin 7.5%. Year over year net income was 35% better than the year before, at $428 million.

Alan B. Graf, Jr., executive vice president and CFO, indicated that third quarter earnings were better than the company’s forecast, “due to a stronger than expected holiday peak season for FedEx Ground, improved productivity in our transportation segments, lower than expected fuel costs, deferral of advertising and promotion costs to the fourth quarter and a lower effective tax rate.”

Looking at the four major corporate segments:

• FedEx Express saw solid growth in its International Priority (IP) and U.S. Overnight revenues. Overall revenues were $5.34 billion, an increase of 9% for the segment. Average daily package volume for IP grew by 10% due to strength in both Europe and Asia as well as U.S. exports growth. Though U.S. domestic volumes declined by 3%, revenue per package increased 8%, driven mainly by higher fuel surcharges, a bump in prices taking effect in January and yield management actions.

• FedEx Ground grew 14% to revenues of $1.36 billion for the quarter. Its average daily package volume grew by 11% and its yield jumped 5% due to the January rate increase, fuel surcharge increase and higher revenues from extra services.

• FedEx Freight, too, grew revenues by 14%, to $848 million. Operating income was $73 million, a jump of 35%, with a margin of 8.6%, compared to last year’s 7.2%. Greater demand for the segment’s regional and interregional services translated into an increase of 7% for its daily less than truckload shipments. Fuel surcharges and higher rates helped boost income.

Looking ahead, CFO Graf says, “Our earnings guidance for the fourth quarter, which assumes continued economic growth, reflects a more normal expense trend.”

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