FedEx Profits Above Initial Expectations

Sept. 18, 2009
In its fiscal first quarter, FedEx reported revenues down 20% and net profit off by 53% from the same period in 2008

“Better-than-expected FedEx International Priority volume, decisive management actions and our dedicated team members helped drive financial performance above our initial expectations in the first quarter,” said Frederick W. Smith, chairman, president and CEO of FedEx Corp.

At $8.01 billion in the fiscal first quarter, revenues were down 20% from the same period in 2008. Overall operating margin was 3.9%, down from 6.3% in the 2008 period. Net income was $181 million, down 53%.

“While we see signs of improvement in the economy, the year-over-year comparisons will remain very difficult for our second quarter,” said Alan B. Graf Jr., executive vice president and chief financial officer. “We remain focused on managing our expenses and generating positive cash flow.”

FedEx Express will increase shipping rates by an average of 5.9% for US domestic and US export services, effective January 4, 2010, the company said. The rate increase will be partially offset by adjusting the fuel price at which the fuel surcharge begins, reducing the fuel surcharge by two percentage points. Additional changes will be made to other FedEx Express surcharges, the company announced. Details of these and other changes to be announced later this year can be found at the company's Web site under 2010 Rates.

In its segment analysis of the first-quarter results, FedEx Express reported revenues of $4.92 billion, off 23%. Operating income was $104 million, down 70% from the prior year. And the operating margin eroded to 2.1% vs. the 5.4% posted for the same period a year ago.

US domestic package revenue declined 22%, driven by a 23% drop in revenue per package due to lower fuel surcharges, rate per pound and weight per package, said FedEx. US domestic package volume grew slightly.

FedEx International Priority (IP) package revenue declined 22%. IP revenue per package declined 20% due to lower fuel surcharges, unfavorable exchange rates and lower package weights, while IP package volume fell 4%.

Results were negatively impacted by continued global economic weakness and substantially lower fuel surcharges, partially offset by gains from DHL's exit from the US domestic package market. Expenses improved due to lower fuel prices and consumption, continued reductions in flight hours, labor hours, purchased transportation and other aggressive actions to control spending.

FedEx Ground reported revenue of $1.73 billion, down 2% from last year’s $1.76 billion. Operating income was $209 million, up 7% from a year ago. The operating margin also improved, posting 12.1% vs. 11.1% in the prior-year period.

FedEx Ground average daily package volume was down 1% compared to the prior year. Yield decreased 3% primarily due to lower fuel surcharges. FedEx SmartPost average daily volume grew 73% largely due to market share gains, including gains from DHL’s exit from the US domestic package market. FedEx SmartPost yield decreased 34% due to changes in customer and service mix.

On the FedEx Freight side, Revenues of $982 million were down 27% from last year’s $1.35 billion and operating income totaled $2 million, down 98% from $89 million a year ago. The FedEx Freight operating margin was 0.2%, down from 6.6% the previous year.

Less-than-truckload (LTL) average daily shipments decreased 14% and yield decreased 13% year over year, reflecting the continued weak economy and resulting excess industry capacity, as well as an increasingly competitive pricing environment, said FedEx. LTL yield was also negatively impacted by lower fuel surcharges. Average daily LTL shipments improved sequentially month over month throughout the quarter.

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