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December 18, 2018 5:45 PM, EST

FedEx Reports Strong 2Q Earnings

Some Cuts Planned Due to Slow International Growth
A FedEx Express truck makes deliveries Christopher Dilts/Bloomberg News

FedEx Corp. reported a 20.6% increase in net income in its fiscal second-quarter financial results, released Dec. 18.

The Memphis, Tenn.-based parcel delivery company posted a profit of $935 million, or $3.51 a share, compared with $775 million, or $2.84 a share, for the same period last year.

Fred Smith

Smith

FedEx CEO Fred Smith said in a conference call with reporters and analysts the company is doing well domestically, but he expressed concerns about other parts of its international shipping network.

“FedEx is in the midst of another record-setting holiday season, and we salute our more than 450,000 team members for delivering outstanding customer service,” he said. “While the U.S. economy remains solid, our international business weakened during the quarter, especially in Europe. We are taking action to mitigate the impact of this trend through cost-reduction initiatives.”

Smith also voiced concerns over the increasingly difficult trade relations between the United States and China. As a result, FedEx is lowering its fiscal 2019 earnings guidance and reducing costs.

“China’s economy has weakened due in part to trade disputes,” he said.

Raj Subramaniam

Subramaniam

“In the U.S., growth remains solid, driven by robust consumer spending in favorable conditions in the industrial sector,” Raj Subramaniam, FedEx’s chief marketing and communications officer, said during the call. “Internationally, economic strength seen earlier this year has given way to a slowdown. The peak for global economic growth now appears to be behind us.”

The company’s quarterly revenue was up 9.2% to $17.8 billion compared with $16.3 billion for the same period last year. Operating income also rose, 4.4% to $1.17 billion, compared with $1.12 billion in 2017.

Its primary operating companies are FedEx Express, including TNT Express, the world’s largest express transportation company; FedEx Ground Package System Inc., a North American provider of small-package ground delivery services; and FedEx Freight Corp., a U.S. provider of less-than-truckload freight transportation services. These companies represent its major service lines, along with FedEx Corporate Services Inc.

Some of the steps FedEx announced to improve its financial picture internationally include reducing variable compensation, implementing a voluntary buyout program, beginning international network capacity reductions at FedEx Express, curtailing hiring in some staff functions and reducing discretionary spending.

“Global trade has slowed in recent months, and leading indicators point to ongoing deceleration in global trade near-term,” Chief Financial Officer Alan Graf said. “These trends, coupled with the change in service mix at FedEx Express, are negatively impacting the segment’s financial results. We remain committed to actively managing costs with a heightened focus on increasing efficiency across the organization.”

FedEx officials said they are very pleased with the company’s performance in moving a record number of packages through its system, especially as e-commerce has boomed and more shoppers are using that method of shopping, instead of traditional brick-and-mortar stores.

“At FedEx Ground, I think it’s particularly notable, 96% of packages moved through an automated facility, translating to increased efficiency and speed,” Smith said. “During this holiday season, service is at record levels. [On Dec. 17], 67% of FedEx Ground packages were delivered one full day earlier than scheduled despite it being one of the busiest days in the history of our company. What’s more? [Dec. 17] was the busiest shipping day ever at FedEx Office.”

FedEx Corp. ranks No. 2 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.