FedEx reports 12 percent decline in net income for fiscal second quarter
December 19, 2012
The aftereffects of Super Storm Sandy had an impact on fiscal second quarter net income for global transportation and parcel bellwether FedEx at $438 million, which was down 12 percent annually from $497 million, the company said in its earnings announcement today.
Quarterly revenue of $11.1 billion was up 5 percent from last year’s $10.6 billion, and operating income at $718 million was down 8 percent from $780 million. Its operating margin—at 6.5 percent—was down from 7.4 percent. FedEx reported earnings per share of $1.39, which was down from $1.57 from last year. This was below Wall Street estimates of $1.41 per share.
“Operating income for the quarter improved at FedEx Freight and FedEx Ground due to increased volumes and higher yields, while persistent weakness in the global economy and increased demand for lower-yielding international services limited profits at FedEx Express,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer, in a statement. “Earnings also were negatively impacted by disruptions caused by Superstorm Sandy. We are hard at work on another record-setting holiday shipping season, driven by the continued growth of e-commerce.”
T. Michael Glenn, FedEx executive vice president, market development and corporate communications, said on an earnings conference call this morning that FedEx continues to see modest growth in the global economy, with its forecast for U.S. GDP at 1.9 for calendar year 2013. The company’s global GDP forecast is 2.5 percent for the same period.
Individual unit quarterly performances: FedEx Express quarterly revenue was up 4 percent at $6.86 billion, with an operating margin of 3.4 percent, down from last year’s 5.2 percent and an operating income of $230 million for a 33 percent annual decrease. FedEx said revenue growth was constrained by global economic conditions.
Revenue at FedEx Ground was up 8 percent at $2.46 billion, with an operating margin of 18.1 percent, compared to 17.9 percent last year, and an operating income of $445 million for a 9 percent annual gain. Company officials said revenue growth was driven by business acquisitions and growth at FedEx Trade Networks, while core express revenue growth was hindered by global economic conditions and Superstorm Sandy.
FedEx Ground revenue at $2.59 billion was up 11 percent, and operating income at $412 million was up 4 percent. Quarterly operating margin at 15.9 percent was down from 17.0 percent.
FedEx Freight revenue at $1.38 billion was up 4 percent from $1.33 billion last year, with an operating margin at 5.5 percent compared to 3.0 percent a year ago. FedEx Freight had an operating income of $76 million which was up 90 percent from $40 million.
FedEx Freight yield was up 2 percent due to improvements in its FedEx Freight economy yields, and average daily shipments rose 4 percent due FedEx Freight Economy base yield improvement. And daily LTL shipments rose 2 percent, due to higher customer demand for the FedEx Freight Economy service offering in all lengths of haul. Weight per LTL shipment was flat at 1,147 pounds, and composite LTL yield—at $20.28—was up 2 percent.
Average daily package volumes at FedEx Ground were up 8 percent at 4.019 million packages per day, due to increases in FedEx Home Delivery services and business-to-business services, according to FedEx officials. And revenue per package rose 2 percent due to increased rates and higher extra service revenue.
FedEx SmartPost, its “last mile” delivery service partnership with the United States Postal Service saw daily volume increase 18 percent at 2.038 million average daily packages per day due largely to increasing e-commerce activity and revenue per package at $1.82 up 2 percent, due to a change in service mix and rate increases, which were offset by higher postage rates. .
Total U.S. domestic express packages at 2.533 million per day saw a 2 percent annual decline, while International Priority at 408,000 packages per day dipped 2 percent, and International Domestic was up 3 percent at 445,000 packages per day. Total revenue per U.S. domestic package at $17.24 was up 1 percent, and total revenue per package for International Priority and International Domestic at $59.91 and $6.88 were down 3 percent and up 6 percent, respectively.
“The Domestic Air Express shipment count continues to decline, although the rate of decline has abated somewhat, it is still the seventh straight quarter with year over year declines,” said Jerry Hempstead, president of Hempstead Consulting. “Express is the coal that feeds the engine at FedEx. Planes need packages for FedEx to continue to be healthy. Without package count increases then FedEx must reduce its costs and it must improve the price it charges. Deferred Air has had six consecutive quarters of shrinking volumes year over year. The rate of decline in the most recent quarter however was much less than that in the prior quarter. The count of packages is often considered an indicator of the health of the economy.”
And Glenn added that FedEx expected to handle more than 19 million packages on Monday, December 10, which it exceeded, and it also handled more than 19 million packages on Cyber Monday, which fell on November 26, and Monday, December 17.
“This heavy volume was primarily driven by e-commerce sales, which consist of lighter weight, lower yielding residential delivery packages,” he said. “Our Express and Ground teams worked very closely with our largest e-commerce and multichannel retail customers to deliver outstanding service during this peak season.”
During the fiscal second quarter, FedEx announced programs targeting annual profitability improvement of $1.7 billion during the next three years, with a significant portion of the benefit to be achieved by the end of fiscal year 2015.
FedEx Chief Financial Officer Alan Graf said on the call that the majority of the profitability improvement will come from initiatives at Express and Services, coupled with cost reductions in its Selling, General and Administrative services groups, headcount reductions, streamlining businesses and the elimination of less essential work and services.
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