FedEx kicks off FY 2015 with strong earnings performance

FedEx kicked off fiscal year 2015 with a very strong start.

The Memphis-based company reported today that quarterly net income of $606 million was up 24 percent annually, and revenue, at $11.7 billion, was up 6 percent. Operating income at $987 million was up 24 percent.

Quarterly operating margin—at 8.5 percent—was up from 7.2 percent a year ago. And FedEx reported earnings per share of $2.10, which was up 37 percent from $1.53 per share a year ago and beat Wall Street expectations of $1.96 per share.

“We are off to a good start for the fiscal year,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer, on the company’s earnings call this morning. “We had a strong performance with Ground and solid volume and revenue increases at Freight, and volume and yield growth at Express. We expect continued revenue and earnings growth in Fiscal 15, assuming moderate global economic growth and stable fuel prices.”

T. Michael Glenn, FedEx executive vice president, market development and corporate communications, said on the call that will private sector demand accelerating and fiscal austerity measures winding down there are expectations for GDP growth to average around 3 percent for the remainder of 2014 and into 2015. He added that FedEx has increased its expectations for industrial production growth to 4.1 percent this year and 3.8 percent next year.

Glenn said that in regards to Peak Season, the company is expecting another record Peak Season in terms of delivery volume, with Peak Season compressed again this year, with Cyber Monday falling on December 1.

“We have had active dialogue with our retail and e-tail customers all year to understand their peak shipping needs and plan our operations accordingly,” he said. “We expect more than 50,000 seasonal positions to be added for the upcoming peak across the FedEx operating companies.”

Individual unit quarterly performances: FedEx Express quarterly revenue was up 4.0 percent at $6.86 billion, with an operating margin of 5.4 percent, up from last year’s 4.1 percent and an operating income of $369 million for a 35 percent annual increase. FedEx said that revenue was up because of higher U.S. domestic package volume and international export package yields that were partially offset by lower envelope volume. U.S. domestic yield was up 1 percent at $579 million, and International Priority was up 3 percent at $395 million.

Revenue at FedEx Ground increased 8 percent at $2.96 billion, with an operating margin of 18.4 percent, up from 17.7 percent last year, and an operating income of $545 million for a 13 percent annual gain. FedEx said that average daily ground volume was paced by e-commerce growth up 6 percent at nearly 4.6 million packages per day, and revenue per package was up 3 percent.

FedEx Ground’s SmartPost, its “last mile” delivery service partnership with the United States Postal Service, saw average daily volume drop 10 percent to 1.880 packages per day, with revenue per package, at $9.33, up 10 percent due largely to rate increases and an improved customer mix that was partially offset by higher postage rates. FedEx said that that drop in daily volume was due to a volume decrease from a major customer.

On the less-than-truckload side, FedEx Freight revenue was very strong, with a 13 percent increase at $1.61 billion, and operating income up 70 percent at $168 million. Quarterly operating margin came in at 10.4 percent, ahead of 7.0 percent a year ago. Average daily shipments—at 98,107—were up 10 percent, and weight per shipment—at 1,185—was up 1.6 percent. Revenue per hundredweight was up 1 percent at $20.18. FedEx said that revenue per shipment was up due to higher weight per shipment, increased fuel surcharge, and higher rates, with operating results seeing gains because of higher LTL revenue per shipment, higher average daily LTL shipments and cost management processes.

Rate increases: Late yesterday, FedEx said rate increases will take effect for FedEx Express, FedEx Ground, and FedEx Freight, effective January 5, 2015. Rates for FedEx Express will head up by an average of 4.9 percent for U.S. domestic, U.S. export and import services. And FedEx Ground and FedEx Home Delivery will also raise rates by an average of 4.9 percent, with Ground also implementing its dimensional weight pricing for all shipments, which was announced earlier this year.

“This is the first time FedEx has announced Ground prior to UPS,” said Rob Martinez, president & CEO, Shipware Systems Corp, a San Diego-based parcel consultancy. “It’s also noteworthy that at 4.9%, Express is taking a higher increase than recent years (3.9% in each of the last 5 years when offset by fuel surcharge reduction).”

FedEx Freight’s rates will rise 4.9 percent on average for eligible shipments within the U.S., as well as Alaska, Hawaii, Puerto Rico, and the U.S. Virgin Islands, and between and within the contiguous U.S. and Canada and Mexico.

Jerry Hempstead, president of Orlando, Fla.-based parcel consultancy Hempstead Consulting, said that FedEx is hitting on almost every cylinder.

“There are two areas that need a little focus,” he noted. “SmartPost which is still smarting from one large customer deciding on taking a good deal of traffic away from FedEx in order to do their own USPS direct drops, causing a drop of more than 10 percent year-over-year in volume decline, and the Overnight Envelope which is down over 6 percent in volume year over year. Its is interesting that the revenue decline on the Express Envelope is only 1 percent, which has much to do with price increases and discipline in discounting, with revenue per shipment and per pound were both up for this service.

For SmartPost, Hempstead said the yield saw a dramatic increase year over year, most likely because of the loss of the business of one shipper who commanded extraordinarily large discounts.

“Fedex is off and running,” Hempstead concluded. “With the rate increase that was announced last night and the effect of the dimensional pricing rule change, they stand to have a great fiscal year, which is perhaps not the best news for shippers, however.”