FedEx says fiscal Q4 earnings take a $241 million net loss 

Fuel costs, Kinkos writedown cited as factors in quarterly performance

Jeff Berman, Group News Editor -- Logistics Management, 6/18/2008

MEMPHIS—Difficult economic conditions, due in large part to increasing oil and fuel prices, resulted in a down fiscal 2008 fourth quarter performance for FedEx.

The company reported a quarterly loss of $0.78 per share and a net loss of $241 million, which was down from last year’s net income of $610 million. FedEx said these results include an $891 million write down—$2.22 per diluted share—for one-time, non-cash asset impairment charges related to its previously-announced decision to minimize the use of the Kinko’s trade name and the value of goodwill resulting from the Kinko’s acquisition. It also announced that the name of FedEx Kinkos has been changed to FedEx Office to better reflect the wide range of retail services it offers and take full advantage of the FedEx brand.

“Record high fuel prices and the weak U.S. economy dampened volume growth and substantially affected our bottom line,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer, in a statement. “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.”

Quarterly revenue at $9.87 billion was up 8 percent year over year from $9.15 billion, and the company had an operating loss of $163 million, which was down from $1.01 billion in quarterly income a year ago.  

But despite its quarterly net loss, revenues for FedEx’ three primary units were up for the quarter, with: FedEx Express up 9 percent at $6.37 billion; FedEx Ground up 8 percent at $1.72 billion; and FedEx Freight up 5 percent at $1.31 billion. Operating income for these three units, though, were down 37 percent, 31 percent, and 21 percent, respectively.

FedEx’ operating income for the full fiscal year at $2.08 billion is down 37 percent from $3.28 billion last year, and net income at $1.13 billion is down 44 percent from $2.02 billion last year.

In terms of volumes, FedEx Express’s total average daily package volumes were down 1 percent at 3,481 compared to 3,531 for the same timeframe last year. Total U.S. domestic packages at 2,663 were down 3 percent compared to last year’s 2,756. On the FedEx Ground side, average daily package volume at 3,305 outpaced last year’s 3,128 by six percent, and revenue per package was up to $7.74, a 4 percent gain over last year’s $7.43.

“These low volumes are not a surprise, because they are expected and understood due to high gas prices for shippers, carriers, and consumers,” said Satish Jindel, president of Pittsburgh-based SJ Consulting. “The money that consumers typically have to spend on things that need to be moved has slowed down.”

What is more striking regarding today’s FedEx earnings news is the margin decline on the FedEx Ground side, said Jindel. Despite the volume increase, the units operating margin declined 5.5 points to 11.8 percent from 17.3 percent.

He said that FedEx is currently working through financials on the Ground side of the business, with the changes it is making from single to multiple independent contractors and the legal fees it is doling out for its legal case with the IRS, dating back to last December when the Internal Revenue Service ordered Fed Ex to pay back taxes and fines totaling $319 million for ground employees the firm misclassified as independent contractors, according to a Marketwatch report.  

Going forward, FedEx is projecting earnings for the first quarter of fiscal year 2009 to be $0.80-$1.00 per diluted share, compared to last year when it was $1.58 per share with oil at $70 per barrel and the economy in better shape. It expects fiscal 2009 earnings to be between $4.75-$5.25 per diluted share.

A note to clients sent by Wolfe Research indicated that although FedEx’ quarterly growth was modestly above expectations, it was largely driven by fuel surcharges and strong international performance on the Express side.