FedEx reports 110 percent gain in net income for fiscal first quarter 2011
September 16, 2010
FedEx got fiscal year 2011 off to a strong start, with net income of $380 million for the quarter for a 110 percent increase from $181 million during the same timeframe a year ago.
Quarterly revenue of $9.46 billion was up 18 percent from $8.01 billion last year, and operating income at $628 million was up 99 percent from $315 million a year ago. FedEx reported earnings of $1.20 per share up from $0.58 per share last year, which was below Wall Street analysts’ estimates of $1.30-$1.37 per share.
“Improved global economic conditions fueled strong demand for our services, increasing volumes and revenue per package at FedEx Express and FedEx Ground,” said FedEx Chairman, President, and CEO Frederick W. Smith on a conference call earlier today. “We expect a phase of somewhat slower economic growth going forward. The recovery began a year ago, and we believe slower growth is consistent with business cycles.”
Smith said FedEx is taking full advantage of the global economic recovery because of the action the company has taken to manage its costs and strategically invest in key global growth markets, acquire more efficient aircraft, streamline its networks, and focus on its customers.
“We are optimistic about being able to improve our earnings in years to come and resuming our growth trajectory that was the case prior to the recession,” said Smith. “Of significant importance is that global trade continues to rebound in volume and value. We are seeing signs of a solid holiday shipping season, as many of our customers selling high-tech and high value-added goods trade up for faster premium services to meet their customers’ demand.”
Reflecting the onus on global trade, Smith pointed out that in August FedEx Express added its tenth scheduled Trans-Pacific flight and earlier this week an 11th flight, providing needed capacity between Asia and the U.S. And in October Smith said FedEx plans to add new 777 freighters to take the place of MD-11 aircraft in the Asian market.
Individual unit quarterly performances: FedEx Express quarterly revenue was up 20 percent at $5.91 billion, with an operating margin of 6.0 percent, up from last year’s 2.1 percent and an operating income of $357 million for a 243 percent increase. Revenue at FedEx Ground was up 13 percent at $1.96 billion (matching the previous quarter), with an operating margin of 14.6 percent, compared to 12.1 percent last year, and an operating income of $287 million for a 37 percent annual gain. FedEx Freight revenue at $1.26 billion was up 28 percent from $982 million last year, with an operating margin at -1.3 percent compared to 0.2 percent a year ago.
Average daily package volumes at FedEx Ground were up 7 percent at 3,534 packages per day, due to increases in the B2B and FedEx Home Delivery service markets, according to company officials, with yields up 5 percent due to higher fuel surcharges and package weight. FedEx SmartPost, its “last mile” delivery service partnership with the United States Postal Service saw daily volume up 9 percent at 1,100 average daily packages per day and net yield up 19 percent, due in large part to lower postage costs and a result of increased deliveries to USPS final destinations and increased fuel surcharges, said FedEx.
Jerry Hempstead, principal of Hempstead Consulting, noted in an interview that Ground volumes include SmartPost data and said that it appears there is a significant trend at work.
“It looks like the domestic business-to-business acquisition is accelerating and the SmartPost contribution is moderating [SmartPost average daily volume increased 23 percent in the fiscal fourth quarter], with SmartPost’s decline in year-over-year growth falling from 63 percent to 46 percent to 23 percent to 9 percent, going back to December 2009,” said Hempstead. “I suspect their future holds a zero year-over-year growth at some point but maybe not until the fiscal fourth quarter.”
It is obvious that FedEx is taking away market share from UPS on the ground even though UPS showed a year-over-year growth increase in its most recent quarterly results, said Hemsptead. And the positive sign for shippers, he said, is that every announcement from the USPS, UPS, and FedEx this year has been about positive package growth both in domestic air and domestic ground, which could be indicative the recession ended last December.
Total U.S. domestic daily package volumes were up 3 percent at roughly 2,638 pounds per day, and revenue per package at $15.07 increased 7 percent from $14.02. FedEx International Priority average daily package volume was up 19 percent at about 566 pounds per day, due to exports from Asia, and revenue per package at $53.70 was up 4 percent, due to higher fuel surcharges and weight per package.
At FedEx Freight, average daily shipments were up 29 percent year-over-year, while yield fell 3 percent, due to what FedEx cited as recent yield management initiatives to improve pricing.
FedEx also announced that it will combine its FedEx Freight and FedEx National LTL operations, effective January 30, 2011 in an effort to increase efficiencies and reduce operational costs.
Company officials said that this move will provide shippers with a choice of priority of economy less-than-truckload freight services “across all lengths of haul from one integrated company” and will also substantially improve profitability for FedEx Freight in fiscal 2012. FedEx said the estimated costs of this effort is $150-to-$200 million and will include severance costs related to personnel reductions, lease terminations, and certain proceeds from asset sales. Headcount is expected to be reduced by roughly 1,700 employees and about 100 facilities will be closed.
For the second quarter of Fiscal Year 2011, FedEx said it projects earnings to be $1.15-$1.35 per share and $4.460-$5.20 for the entire fiscal year. The company said this guidance excludes any FedEx Freight combination costs and assumes the current outlook for fuel prices (which are relatively low) and continued moderate growth in the global economy. FedEx also said that its fiscal year 2011 capital spending forecast has been bumped up to $3.5 billion, due to anticipated aircraft purchases for continued international growth.
“We expect continued strong demand for our package transportation services through at least December,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer, in a statement. “Shippers of high value-added goods, especially in the technology sector, know that we have unmatched air express capacity to deliver quickly and reliably for them, even when demand surges. We expect the yield improvement initiatives we have underway, coupled with the current high utilization of our planes, vehicles and facilities, will drive higher earnings, margins and returns.”
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