Despite cost reduction efforts, FedEx posts strong quarterly data
June 21, 2013
When large transportation and logistics providers announce earnings results, I endeavor to cover them on this Web site. Earlier this week, FedEx issued its fiscal fourth quarter results while I was on the road, attending the eyefortransport 3PL Summit in Chicago, which prevented me from posting an earnings story right after the earnings call, as per the usual.
That said, most of you have likely seen the data by now, so, in this space, I will provide a top-level recap of what the Memphis-based giant disclosed.
Fiscal 2012 fourth quarter net income at $303 million was down 45 percent year-over-year from $550 million. Quarterly revenue of $11.4 billion was up 3.5 percent from last year’s $11 billion, and operating income at $502 million was down 41 percent from $856 million. Quarterly operating margin—at 4,4 percent—was down from 7.8 percent a year ago.
Earnings per share at $2.13 got trimmed down to $0.95 per share after a $0.98 reduction for a business realignment charge and another $0.20 for a noncash aircraft impairment charge. The latter was not a surprise as FedEx has said that it is scaling back its total number of aircraft assets and has also cited marginal air growth in the Asia-Pacific region and will continue to decrease capacity between Asia and the U.S. in July.
Despite the uncertain global economy, FedEx remains optimistic over all.
“FedEx Ground posted another strong year and FedEx Freight margins continued to improve,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer, in a statement. “These positive developments did not fully offset tepid economic growth and customer preference for less costly international shipping services. FedEx Express results improved in the fourth quarter, and while near-term challenges remain, we are confident we are positioning FedEx for profitable, long-term growth.”
Along with its plan to reduce its aircraft assets, FedEx announced late last year that it plans to restructure its Express group, which included a voluntary employee separation program completed during the fiscal fourth quarter, with roughly 3,600 employees to voluntarily leave the company. While the restructuring is expected to increase profits by $1.7 billion over the next three years, FedEx incurred costs of $496 million and $560 million, for the fourth quarter and full fiscal year, respectively, due to business realignment activities.
Here is a quick look at quarterly performances for some of the company’s key operating groups:
-FedEx Express—$6.98 billion in revenue was up 3 percent annually, and operating income of $460 million was up 11 percent. The company said these gains occurred despite a “demand shift toward lower yielding international services” like the impact of the fuel surcharge timing lag, and capacity reductions.
In terms of package growth, U.S. domestic average daily package volumes were up 2 percent at 2.528 million, with revenue per package up 1 percent at $17.76, which were offset by lower fuel surcharges. On the international side, FedEx International Economy volumes were up 11 percent at 164,000 packages per day and FedEx International Priority dipped 2 percent to 415,000, with Priority and Economy yields down 2 percent and 1 percent, respectively.
-FedEx Ground—$2.78 billion in revenue was up 12 percent annually and operating income was up 13 percent at $557 million. The gain in operating income, said FedEx, was attributed to higher volume—at 4.246 million packages per day—and revenue per package of $9.19, but intercompany costs related to business realignment efforts drove down operating income by $93 million.
Promising numbers of the ground side included an average daily volume gain of 10 percent in the fourth quarter, due primarily to what it said were market share gains and continued e-commerce growth, as evidenced by the aforementioned 2 percent gain in average revenue per package.
And speaking of e-commerce, FedEx SmartPost, its “last mile” delivery service partnership with the United States Postal Service, which is primarily spurred by e-commerce activity, saw a 25 percent boost in average daily volume at 2.078 million, but revenue fell 7 percent to $1.74, due to increased postage rates.
On the LTL, side, FedEx Freight revenue was off 1 percent at $1.39 billion, and operating income at $81 million was flat. Daily LTL shipments were down 3 percent, due to some challenges by customers in migrating FedEx Freight functionality to the FedEx enterprise automation platform. LTL weight per shipment was up 2 percent and yield was up 1 percent.
Jerry Hempstead, president of Orlando-based parcel consultancy Hempstead Consulting said that there were some very interesting trends within the earnings announcement, including annual growth in packages and envelopes (up 1 percent at $11.91 per envelope), which he said is positive and back on track with the economy.
“The package counts in all the domestic air packages (the coal that makes the steam that pulls the Fedex train) were all positive and that mixed with the rate increase FedEx imposed in January helped make the quarter prettier than Wall Street expected,” explained Hempstead.
The darling of the company, he said, has to be Smartpost which grew 25 percent in a quarter that is usually soft (March, April, May), coupled with the 10 percent daily package gain at Ground.
“FedEx has been very disciplined as to which ground opportunities they actively pursue,” he said.
“Of concern to Wall Street moving forward is going to be the decision…to no longer offer forward looking guidance on earnings. The Wall Street analysts hate that because they then face the possibility of being way off on their estimates when a company announces. FedEx had a very strong quarter and from what I am hearing on the street FedEx is very focused internally on growth and cost control. Both are good for investors.”
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