FedEx Reports $521 Million Profit; Loss at Freight Division Shrinks

FedEx Corp. said net income for its fiscal third quarter more than doubled to $521 million from $231 million, which included a sharply lower loss at FedEx Freight.

Total revenue was $10.6 billion for the quarter ended Feb. 29, reflecting improved profitability at the FedEx Express and Ground businesses.

Earnings totaled $1.65 a share, which included a 10-cent gain from a reversal of legal costs. In the year-earlier period, profit was 73 cents a share, including an 8-cent reduction for costs related to integration of FedEx Freight business.

“FedEx Corp. results were driven by improving yields, record holiday package shipping and exceptional performance at FedEx Ground,” said CEO Frederick Smith said March 21. “We expect our solid performance to continue in our fourth quarter, capping off a strong fiscal year.”

FedEx, Memphis, Tenn., said the results incorporated a $1 million loss at FedEx Freight, breaking a string of three consecutive profitable quarters. However, in the year-earlier period, the freight unit lost $110 million.

Revenue at the freight unit in the most recent quarter was $1.23 billion, a 10% improvement.

Speaking on a conference call about the Freight unit, Chief Financial Officer Alan Graf said there was “sequential improvement during the quarter. While we are pleased with progress Freight is making, we still have work to do optimize the network.”

William Logue, president of the unit, said the sequential improvement that began after a volume falloff in December is continuing in the fiscal fourth quarter.

Freight’s shipments rose 2% during the quarter, and revenue per 100 pounds of freight rose 6% to $19.70, producing an operating ratio of 100.1. Weight per shipment rose 6 pounds to 1,157 pounds.

Better weather also helped the Freight business, compared with last year, when it was hobbled by winter storms in key locations such as Chicago and Dallas just days after the integration of less-than-truckload networks.

Rate increases and an additional operating day during the quarter also supplemented FedEx Freight results, the company said.

Other LTL carriers, including Con-way Freight and UPS Freight, reported profits in their most recent quarters.

In the prior year, FedEx Freight’s operating ratio was 109.8. That quarter included $43 million in one-time integration costs that were part of the $110 million operating loss.

At FedEx Express, revenue rose 8% to $6.54 billion, resulting in operating income of $349 million, nearly double the prior year quarter’s $178 million.

Higher package weights and fuel surcharge collections helped to improve results and produced higher revenue per package for both domestic and international business.

In the United States, revenue per express package was 9% higher, offsetting a 4% drop in volume. International package volume fell 1%, but revenue per package rose 5%.

The Ground business posted a 43% improvement in operating income to $465 million, the highest of any individual unit. Revenue rose to $2.48 billion, a 7.4% increase, from $2.31 billion.

Ground shipment volume rose 5% and rates including fuel surcharge rose 8%, allowing the business to post an 81.2 operating ratio.

On a companywide basis, operating income more than doubled to $813 million.

Earnings for the fiscal fourth quarter ending May 31 were estimated at $1.75 to $2 per share, based on expectations of continued modest growth in the U.S. economy and related volume growth during the period. The prior year earnings were $1.75 a share.

For the full fiscal year, earnings were forecast to be as much as $6.60 per share, excluding the gain reported in the third quarter.

“We are pleased with the improved performance at FedEx Ground and FedEx Freight during our third quarter,” Graf said.