FedEx’s Net Income Surges 14% as Results Improve at All Units

This story appears in the Dec. 23 & 30 print edition of Transport Topics.

FedEx Corp. said its net income improved 14% to $500 million, or $1.57 per share, for the fiscal second quarter ended Nov. 30, as results rose at all units.

Revenue improved 3% to $11.4 billion from $11.1 billion in last year’s quarter, when net income was $438 million, or $1.39.

The Express business led the way, posting income before taxes and interest of $326 million, a 42% increase that was aided by cost reductions. Ground operating income rose 3% to $424 million, lagging behind 10% more revenue. Freight’s operating income rose 1% to $77 million, a slower pace than a 4% growth in revenue.

“FedEx posted solid second-quarter earnings, reflecting improved performance at FedEx Express, as the profit improvement plan introduced more than a year ago continues to gain momentum,” CEO Frederick Smith said in a statement.

For the Express unit, the reduction in costs totaled $110 million, more than offsetting a $14 million drop in revenue to $6.84 billion. Total packages handled fell 0.2% to 4.01 million.

The revenue decline reflected a mixture of factors, including higher revenue for deferred domestic and international shipments as more customers continued to choose lower-priced options. A 10% decline in airfreight revenue hurt results. Express’ operating ratio was 95.2, improved from 96.6 in the year-earlier period.

The Ground business’ revenue climbed to $2.85 billion. With revenue growing faster than profit, its operating ratio slipped to 85.1 from 84.1.

“Operating margin declined primarily due to this year’s later start of the holiday shipping season, as Cyber Week occurred in December this year versus November last year,” the company’s earnings announcement said. “The seasonal increases in volume, revenue and operating income related to Cyber Week will be realized in this year’s third quarter versus the second quarter last year.”

The revenue increase included 8% more shipments and 2% higher rates.

The lower-priced SmartPost shipping option produced 9% more volume and revenue per shipment of $1.77, far below the average ground package revenue of $8.90.

At Freight, revenue rose 4% to $1.43 billion from $1.38 billion.

Shipments rose 3.7% in the priority LTL business, which accounts for 70% of Freight volume. The Economy business improved 4.7%.

Weight per shipment improved 2%, FedEx reported, reflecting increases in both LTL services.

The operating ratio worsened slightly to 94.6 from 94.5.

The $57 million rise in revenue was accompanied by $22 million higher wage and benefit costs, $26 million more in purchased transportation costs such as using rail.

Revenue per hundred pounds of freight dipped 1.4% to $19.98, falling in both the economy and priority business lines.

“We’re really pleased with our volume across all segments and particularly the priority and economy mix,” FedEx Freight President Bill Logue said on a conference call, citing improvements among small, medium and large customers. “We saw very good growth in both, so we are excited about that.”

Logue also said Freight faced “volume challenges” in the quarter.

“The team really responded well, went out there and brought in some excellent volume for us,” Logue said, reiterating the profit growth targets for his unit to double the current level.

“We need really good balance on both volume and yield, and that’s our focus going forward,” he added.

On a companywide basis, operating income was $827 million, up 15%, and the operating ratio improved to 92.7 from 93.5.

In last year’s second quarter, profit was cut by 11 cents per share due to Superstorm Sandy, FedEx said.

The Memphis, Tenn.-based company also increased its full-year earnings forecast to between 8% and 14% improvement, a 1 percentage point improvement on each end of the range, basing the projection on stable fuel prices and moderate economic growth.

 “We remain on track to deliver a solid increase in earnings this fiscal year,” Chief Financial Officer Alan Graf said.

Through the first half of the fiscal year, net income was 10% higher at $989 million, or $3.10, up from $897 million, or $2.84. Revenue improved 2% to $22.4 billion.

The company ranks No. 2 on the Transport Topics Top 100 list of the largest for-hire carriers in the United States and Canada.