FedEx posts strong fiscal Q3 earnings

Transportation and logistics bellwether FedEx today reported strong fiscal third quarter earnings results today.

Quarterly net income of $580 million was up 53 percent annually, and revenue, at $11.7 billion, was up 4 percent. Operating income at $962 million was up 50 percent.

Quarterly operating margin—at 8.2 percent—was up from 5.7 percent a year ago. And earnings per share of $2.01 was up 22 percent from $1.23 per share a year ago, exceeding Wall Street expectations of $1.87 per share.

Company officials said the strong operating results were driven by volume and base yield across all three of the company’s transportation segments, as well as a significant net reduction from fuel, benefits from profit improvement programs, a lower annual weather impact and reduced pension expense.

“We had a very successful peak season as volumes grew across all transportation segments, and our profit improvement programs are moving ahead as scheduled,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer, in a statement. “We believe our strategy is sound, our culture is unique, and our customers value our broad portfolio of business solutions.”

Individual unit quarterly performances: FedEx Express quarterly revenue was up 3 percent at $7.02 billion, with an operating margin of 6.9 percent, up from last year’s 5.2 percent and an operating income of $484 million for a 36 percent annual increase. FedEx said that revenue was up because of higher U.S. domestic package volume and international export package base revenue, which was partially offset by lower fuel surcharges and exchange rates.

Revenue at FedEx Express was down 0.2 percent at $6.66 billion, with an operating margin of 5.8 percent, up from 2.5 percent last year, and an operating income of $384 million for a 129 percent annual gain. FedEx said operating rates were higher due to increased base revenue, a significant net benefit from fuel and a lower year-over-year weather impact. U.S. domestic package volume was up 4 percent at 2.78 million per day, and total international export packages were down 3 percent at 2.023 million per day.

Revenue at FedEx Ground increased 12 percent at $3.39 billion, with an operating margin of 16.4 percent, up from 16.2 percent last year, and an operating income of $558 million for a 14 percent annual gain. FedEx said that average daily ground volume was up 7 percent at 5.136 million packages per day, due to growth in its B2B and home delivery services, with revenue per package up 3 percent at $9.32.

FedEx Ground’s SmartPost, its “last mile” delivery service partnership with the United States Postal Service, saw average daily volume drop 7 percent to 2.360 million packages per day, with revenue per package up 8 percent to $1.97.

FedEx Freight, the company’s less-than-truckload carrier, saw a 6 percent revenue gain at $1.43 billion, with operating income up 94 percent at $68 million, and operating margin up to 4.8 percent compared to 2.6 percent a year ago. Average daily shipments were up 3 percent at 88,800, with revenue per shipment up 3 percent at $242.52 due to higher rates.

Jerry Hempstead, principal of Orlando-based Hempstead Consulting, said that quarterly earnings for FedEx were “through the roof,” even though its domestic air products and international priority businesses were flat.

“How can this be? Well Fedex had not a trifecta but a quadrupa for shippers inside of this quarter,” Hempstead explained. “There was the increase in the base tariff rate, with the large increase in the ground minimum charge; there was the large increase in accesssorial charges, particularly the residential fee; the delivery area surcharge and the extended delivery area surcharge; they changed the dimensional rules for ground packages under three cubic feet, and then they tinkered with the fuel surcharges.

His overall takeaway was that shippers are paying more and getting the same wonderful, consistent predictable service from FedEx and they are taking these price increases and they are sticking because history has shown that as Fedex goes up, so does UPS.

“It’s a great country when there is a duopoly,” he said.