FedEx says 1Q net income down 53%, announces rate hike

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FedEx Corp. today, Sept. 17, announced results for the first quarter ended Aug. 31:

  • Revenue of $8.01 billion, down 20 percent from $9.97 billion;
  • Operating income of $315 million, down 50 percent from $630 million;
  • Operating margin of 3.9 percent, down from 6.3 percent; and;
  • Net income of $181 million, down 53 percent from $384 million.
  • “Better-than-expected FedEx International Priority volume, decisive management actions and our dedicated team members helped drive financial performance above our initial expectations in the first quarter,” said Frederick W. Smith, chairman, president and chief executive officer of FedEx Corp., based in Memphis, Tenn. “For more than a year, we have vigilantly managed costs without sacrificing service, invested wisely and minimized job losses so that FedEx will emerge a stronger, more profitable company as the global economic recovery takes hold.”

    Revenue and profitability continued to be affected negatively year over year by the global recession. Fuel was also a significantly negative factor, primarily due to the substantial decline in fuel surcharges year over year. Strict cost controls and one additional operating day at each of the transportation segments benefited results.

    FedEx also reiterateed its earnings expectation in the second quarter, which reflected the current outlook for fuel prices and a continued modest recovery in the global economy. A substantial decline in net income is expected from a year ago, when the company significantly benefited from rapidly declining fuel prices and the timing lag that exists between when fuel prices change and when indexed fuel surcharges adjust automatically. The company’s capital spending forecast remains $2.6 billion.

    “While we see signs of improvement in the economy, the year-over-year comparisons will remain very difficult for our second quarter,” said Alan B. Graf Jr., FedEx Corp. executive vice president and chief financial officer. “We remain focused on managing our expenses and generating positive cash flow.”

    The company also announced that FedEx Express will increase shipping rates by an average of 5.9 percent for U.S. domestic and U.S. export services, effective Jan. 4, 2010. The rate increase will be offset partially by adjusting the fuel price at which the fuel surcharge begins, reducing the fuel surcharge by two percentage points. Additional changes will be made to other FedEx Express surcharges, details of which can be found at www.fedex.com/us/2010rates. The FedEx Ground and FedEx SmartPost rate and surcharge changes for 2010 will be announced later this year.

    The FedEx Freight segment reported:

  • Revenue of $982 million, down 27 percent from $1.35 billion;
  • Operating income of $2 million, down 98 percent from $89 million; and
  • Operating margin of 0.2 percent, down from 6.6 percent.
  • Less-than-truckload average daily shipments decreased 14 percent and yield decreased 13 percent year over year, reflecting the continued weak economy and resulting excess industry capacity, as well as an increasingly competitive pricing environment. LTL yield also was impacted negatively by lower fuel surcharges. Average daily LTL shipments improved sequentially month over month throughout the quarter. Operating income and margin decreased due to the lower average daily LTL shipments and the competitive pricing environment, partially offset by cost-reduction actions.

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