FedEx says fiscal third quarter earnings down year-over-year
Jeff Berman, Senior Editor -- Logistics Management, 3/20/2008
MEMPHIS—In another sign of economic stagnation in the United States, FedEx said today that its net income for the fiscal third quarter of $393 million was down six percent from last year’s $420 million.
As is the case with many freight transportation and logistics services providers, there are myriad factors contributing to weakened financial performance, including the declines in the housing and automotive markets, low consumer spending, and a recession, which some prominent economists say has already arrived.
Despite the six percent year-over-year quarterly decline, FedEx said revenue of $9.44 billion was up ten percent from last year’s $8.59 billion. Its operating income of $641 million remained the same from last year, and its operating margin slipped to 6.8 percent from 7.5 percent last year.
In terms of some specific units, FedEx Ground’s revenue was up 13 percent at $1.72 billion, but its operating margin slipped to 9.9% from 12.9%. Revenue at FedEx Freight was up 5% at $1.16 billion, and operating margin decreased from 4.5% to 4%.
And due to the challenging economic situation, FedEx Corp. executive vice president Alan B. Graf Jr. said that the company’s fourth quarter earnings outlook has been impacted by higher than anticipated fuel expenses and a weak U.S. economy.
FedEx noted that it expects fourth quarter earnings to be $1.60 to $1.80 per diluted share compared to $1.96 last year, and this estimate is contingent on no additional increases to current fuel prices and no further weakening in the economy, according to the company.
While the combined daily average volume for the FedEx Express and FedEx Ground segments rose 5 percent year-over-year for the quarter—due in large part to growth at FedEx Ground, FedEx International Priority, and a rise in international domestic express shipments from recent international acquisitions—other FedEx segments saw more limited growth.
These included weak demand in the fiscal third quarter for U.S. domestic express, less-than-truckload (LTL) and copy and print services, due to the current economic landscape.
At its March 12 analyst meeting, UPS, FedEx’ biggest competitor, recently took steps to issue cautionary guidance about economic conditions and shipment volumes.
“Both companies have been consistent in providing caution about what is happening in the U.S. economy and the impact of fuel price—not just on their companies alone but on the entire economy, which affects consumers and businesses and the volumes of business they can manage,” said Satish Jindel, president of Pittsburgh-based SJ Consulting.
And even with these challenges, Jindel pointed out that FedEx’ fiscal third quarter earnings are actually better than what the market expected, coming in at $1.26 per diluted share compared to the $1.15-to-$1.30 predicted. But he added that the market is placing its main emphasis on the fourth quarter and the first three quarters of 2008, which he said is likely to be less robust than what the market was originally expecting.
“The ability of FedEx to generate volume is ultimately affected by how the economy goes and not just what happens to the U.S. economy but to the global economy,” said Jindel.
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