FedEx reports 126 percent increase in net income for fiscal third quarter 2012

Global transportation and parcel bellwether FedEx reported today that fiscal 2012 third quarter net income at $521 million was up 126 percent year-over-year from $231 million.

Quarterly revenue of $10.56 billion was up 9 percent from last year’s $9.66 billion, and operating income at $813 million was up 107 percent from $393 million. Its operating margin—at 7.7 percent—was up from 4.1 percent. FedEx reported earnings per share of $1.55, edging Wall Street estimates of $1.52.

“FedEx Corp. results were driven by improving yields, record holiday package shipping and exceptional performance at FedEx Ground,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer, in a statement. “We expect our solid performance to continue in our fourth quarter, capping off a strong fiscal year.”

T. Michael Glenn, FedEx executive vice president, market development and corporate communications, said on an earnings conference call this morning that even with these solid quarterly numbers FedEx expects moderate but below trend growth to continue in the U.S. and globally, with the company expecting calendar year U.S. GDP growth to be 2.1 percent and industrial production growth to be 3.9 percent.

And he added that FedEx expects inventory replenishment and business investment to lead growth in the next few months, with an improvement in the jobs market possibly supporting a housing turnaround later this year. 

“Strong earnings growth at Ground and our ongoing yield management programs at all of our transportation segments drove improved results for the third quarter,” said FedEx Chief Financial Officer Alan Graf on the conference call. Looking ahead, he said FedEx expects strong growth across all of its segments to support revenue and earnings growth in the fiscal fourth quarter.

Individual unit quarterly performances: FedEx Express quarterly revenue was up 8 percent at $6.54 billion, with an operating margin of 5.3 percent, up from last year’s 2.9 percent and an operating income of $349 million for a 96 percent annual decrease.

Revenue at FedEx Ground was up 14 percent at $2.48 billion, with an operating margin of 18.8 percent, compared to 14.9 percent last year, and an operating income of $465 million for a 43 percent annual gain.

FedEx Freight revenue at $1.23 billion was up 10 percent from $1.12 billion last year, with an operating margin at -0.1 percent compared to -9.8 percent a year ago. FedEx Freight had a quarterly operating loss of $1 million compared to an operating loss of $110 million last year.

FedEx Freight yield was up 6 percent due mainly to higher LTL fuel surcharges and base yield improvement, which saw average daily LTL shipments increase 2 percent, with warmer weather helping to spur sequential quarterly improvements.

Average daily package volumes at FedEx Ground were up 5 percent at 3.922 million packages per day, due to increases in the FedEx Home Delivery service and business-to-business markets, according to company officials, with revenue per package—at $8.68— up 8 percent due to higher fuel surcharges and increased rates. FedEx SmartPost, its “last mile” delivery service partnership with the United States Postal Service saw daily volume up 13 percent at 1.701 million average daily packages per day and revenue per package at $1.78 up 5 percent, due mainly to increased fuel surcharges.

Total U.S. domestic express packages at 2.607 million per day saw a 4 percent annual gain, while International Priority at 555,000 packages per day dipped 1 percent, and International Domestic was up 49 percent at 529,000 packages per day. Total revenue per U.S. domestic package at $16.94 was up 9 percent, due to higher rate per pound and fuel surcharges, while total revenue per package for International Priority and International Domestic at $60.88 and $6.73 were up 5 percent and down 8.8 percent, respectively.

Glenn said that in the U.S. Domestic Express business traffic in several of the sectors, especially high-tech, was weaker on an annual basis due to lower volumes from major cell phone manufacturers. He added that there was some intentional mode shift in that segment to products into the right networks to allow manufacturers to meet the needs of their customers and provide them with a better value proposition and enhance the opportunity for FedEx as part of its yield improvement strategy.

And economic conditions in the finance, insurance, and real estate segments saw annual traffic declines, too, due to economic activity, coupled with some competitive losses as part of FedEx’ yield improvement strategy, said Glenn. But he added that these losses were less than what the company had planned for initially.

“We were very pleased to execute on our yield improvement strategy and the parameters we had set for volume impacts,” explained Glenn. “The combination of all those things were the primary drivers…and economic activity and a lot of our customers being very conservative in their supply chain [management].”
Even with strong financial quarterly numbers for FedEx, Jerry Hempstead, principal of Orlando-based Hempstead Consulting, said that the fact that domestic and international air packages were down by 4 and 1 percent, respectively, during the quarter.

“What one infers from that is if they are getting more revenue but handling less packages, either they are charging people a whole lot more for their packages, which is true, or packages are getting heavier,” he said. “Fuel is clearly taking revenue up, which raises the top line even if they are handling the same amount of packages. But with revenue going up on a per package basis, the level is far greater than one would expect based on its GRI (general rate increase) release earlier this year. Rates were raised 5.9 percent, and revenue is going up higher than that.”