FedEx’s Quarterly Profits Drop
This story appears in the Dec. 21 & 28 print edition of Transport Topics.
Net income and revenue declined at FedEx Corp. for its fiscal second quarter ended Nov. 30, but executives said improvements in recent volume trends and the global economy are reasons for optimism.
The second-largest corporation in North American freight transportation earned $345 million, or $1.10 a share, on revenue of $8.6 billion. In the same quarter last year, it had net income of $493 million, or $1.58 a share, on revenue of $9.54 billion.
In a Dec. 17 earnings statement and conference call, the company attributed much of the decline to “lower fuel surcharges and a very aggressive pricing environment.”
“We believe the U.S. economy reached a turning point year-over-year during our second fiscal quarter, with the one-year anniversary of the financial collapse. Several economic indicators related to industrial demand turned positive, compared to the same time last year,” Chairman and CEO Frederick Smith said during the call.
Smith said FedEx has now weathered “the worst economic downturn in its history.”
On Dec. 15, for instance, the Federal Reserve Board said industrial production rose in November for the fourth time in five months. The index, now at 99.4, hit bottom in June at 95.8, after falling sharply for more than a year.
Smith also said business investment is on the rise and companies are not clearing out inventory as aggressively as before.
FedEx Ground, the Memphis, Tenn., company’s truck-based parcel carrier, posted the best performance, increasing revenue by 3% and operating income by 12%. Ground trimmed its operating ratio — expenses as a percentage of revenue — to 87 from 88.1.
Overall, Ground made $238 million on quarterly revenue of $1.84 billion. The unit moved 4.87 million packages a day, up from 4.25 million packages a year earlier. The SmartPost service grew by 63%.
FedEx Express posted declines in revenue and profits but did provide encouraging news in that its International Priority service drew in 6% more package volume and 16% more airfreight, even though yield — revenue per unit — declined with lower fuel surcharges.
Express earned $345 million on quarterly revenue of $5.31 billion.
Express President David Bronczek said Latin America and Asia were doing particularly well, and higher-yielding IP shipments have grown sufficiently that they have been pushing lower-yielding regular airfreight off FedEx’s fleet of cargo aircraft.
Less-than-truckload carrier FedEx Freight, the nation’s second-largest LTL, lost money for the quarter, posting an operating ratio of 101.1, deteriorating from 97.3 a year ago. The number of shipments hauled and weight per shipment increased, but Freight President Douglas Duncan said overcapacity in the LTL sector has led to a very competitive rate environment.
Freight lost $12 million on quarterly revenue of $1.07 billion. Revenue per hundredweight, an important LTL statistic, fell 12% to $17.09.
In his last conference call before retiring on Feb. 28, Duncan said volumes increased during the quarter from September through November and into December.
“They managed costs dynamically and said they weathered the worst economy in their history. That wouldn’t have happened years ago, when they were less broad-based and just an air express carrier,” said stock analyst Donald Broughton, who follows FedEx for Avondale Partners.
Broughton said that labor flexibility and the ability of the Ground unit to add volume and gain market share were particularly important.
While FedEx does not identify fuel surcharge revenue, the price of diesel during the two quarters is somewhat illuminating: From September through November, the average U.S. retail diesel price was $2.701 a gallon, down 22.1% from the same quarter last year, when it averaged $3.467.
