FedEx Corp. Reports Third Quarter Earnings
Additional Cost-Reduction Actions Announced
FedEx Corp. (NYSE: FDX) today reported earnings of $0.31 per diluted share for the third quarter ended February 28, compared to $1.26 per diluted share a year ago.
“Our financial performance was sharply lower during the quarter due to the global recession,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “While we are gaining market share in all of our transportation segments, the downturn in our industry and the severity and expected duration of the recession require that we take additional actions.”
In light of the continuing deterioration in the global economy, FedEx will implement additional cost-reduction initiatives, both in the U.S. and internationally. These measures include the following:
* Network capacity reductions at FedEx Express and FedEx Freight
* Further reduction of personnel and work hours
* Expansion of previously announced pay actions to include non-U.S. employees, where permitted
* Streamlining of information technology systems and other internal processes
* Additional reductions in other spending categories
* Increased economies in the acquisition of goods and services
These cost-reduction actions are expected to result in fourth quarter charges of approximately $100 million, excluding any potential asset impairment charges. For fiscal 2010, these actions are targeted to reduce expenses by approximately $1.0 billion.
“Our goal when we implemented compensation reductions in January for U.S. salaried personnel was to both protect our business and minimize the loss of jobs,” said Smith. “With industrial production and global trade trends worsening since last quarter, we are applying these additional measures to continue to secure as many of our jobs as possible during this downturn. We remain focused on providing outstanding service, and will ensure that our actions do not impede our industry-leading customer experience.”
FedEx expects earnings to be $0.45 to $0.70 per diluted share in the fourth quarter, excluding any one-time charges. Earnings in last year’s fourth quarter were $1.45 per diluted share, excluding a charge of $891 million ($696 million, net of tax, or $2.22 per diluted share) related predominately to non-cash asset impairment charges associated with the decision to minimize the use of the Kinko’s trade name and a reduction in the value of the goodwill resulting from the Kinko’s acquisition. This outlook assumes continued weak global macroeconomic conditions and stable fuel prices.
Third Quarter Results
FedEx Corp. reported the following consolidated results for the third quarter:
* Revenue of $8.14 billion, down 14% from $9.44 billion the previous year
* Operating income of $182 million, down 72% from $641 million a year ago
* Operating margin of 2.2%, down from 6.8% the previous year
* Net income of $97 million, down 75% from last year’s $393 million
Operating results decreased significantly in the quarter, as the continued deterioration in global economic conditions led to lower shipment volumes at FedEx Express and FedEx Freight and a more competitive pricing environment. Revenue was also negatively impacted by reduced fuel surcharges and lower shipment weights. Revenue declines were partially offset by stringent cost control efforts and market share gains, including volumes gained from DHL exiting the U.S. domestic package market. Also included in this quarter’s results were costs related to personnel and facility reductions at FedEx Freight and FedEx Office.
FedEx Express Segment
For the third quarter, the FedEx Express segment reported:
* Revenue of $5.05 billion, down 18% from last year’s $6.13 billion
* Operating income of $45 million, down 89% from $425 million a year ago
* Operating margin of 0.9%, down from 6.9% the previous year
U.S. domestic package revenue declined 15%, driven by a 12% drop in revenue per package due to lower fuel surcharges, weight per package and rate per pound. U.S. domestic package volume declined 3%, despite the benefit of DHL exiting the U.S. domestic package market. FedEx International Priority (IP) package volume fell 13%, with declines in every international region. IP revenue per package dropped 8% due to lower fuel surcharges and unfavorable exchange rates.
Operating income and margin declined due to revenue decreases, despite a 12% decline in expenses driven by lower fuel prices, significant volume-related reductions in flight hours, labor hours and fuel consumption, and aggressive actions to reduce spending.
In February, FedEx Express began operations at its new Asia-Pacific hub located at Baiyun International Airport in Guangzhou, China. The strategically located hub is the company’s largest outside of the United States and positions FedEx to better serve customers doing business in China and the broader Asia-Pacific markets.
FedEx Ground Segment
For the third quarter, the FedEx Ground segment reported:
* Revenue of $1.79 billion, up 4% from last year’s $1.72 billion
* Operating income of $196 million, up 15% from $170 million a year ago
* Operating margin of 10.9%, up from 9.9% the previous year
FedEx Ground average daily package volume grew 2% year over year, primarily due to continued growth in the FedEx Home Delivery service. Yield improved 2% primarily due to increased extra services and higher base rates. FedEx SmartPost revenue increased 14%, while average daily volume grew 44% largely due to market share gains, including gains from DHL’s exit from the U.S. domestic package market.
Operating income and margin increased due to lower fuel prices, higher revenue and improved performance at FedEx SmartPost.
FedEx Freight Segment
For the third quarter, the FedEx Freight segment reported:
* Revenue of $914 million, down 21% from last year’s $1.16 billion
* Operating loss of $59 million, down from operating income of $46 million a year ago
* Operating margin of (6.5%), down from 4.0% the previous year
Less-than-truckload (LTL) average daily shipments decreased 13% year over year, as market share gains were more than offset by the worst LTL environment in decades. LTL yield declined 7%, due to lower fuel surcharges and the continuing effects of a competitive pricing environment resulting from excess capacity in the LTL industry.
The operating loss reflects the extraordinary decline in demand for freight services, the continued competitive pricing environment, costs related to the consolidation of our freight regional offices and severance charges from personnel reductions. These negative factors were partially offset by lower variable incentive compensation and continued stringent cost-containment initiatives, including the personnel and facility reductions.
FedEx Services Segment
FedEx Services segment revenue, which includes the operations of FedEx Office and FedEx Global Supply Chain Services, was down 10% year over year due to declines in printing and document service revenues.
FedEx Corp. (NYSE: FDX) provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenues of $38 billion, the company offers integrated business applications through operating companies competing collectively and managed collaboratively, under the respected FedEx brand. Consistently ranked among the world’s most admired and trusted employers, FedEx inspires its more than 290,000 team members to remain “absolutely, positively” focused on safety, the highest ethical and professional standards and the needs of their customers and communities. For more information, visit news.fedex.com .
Additional information and operating data are contained in the company’s annual report, Form 10-K, Form 10-Qs and third quarter fiscal 2009 Statistical Book. These materials, as well as a Webcast of the earnings release conference call to be held at 8:30 a.m. EDT on March 19 are available on the company’s Web site at www.fedex.com/us/investorrelations. A replay of the conference call Webcast will be posted on our Web site following the call.
Certain statements in this press release may be considered forward-looking statements, such as statements relating to management’s views with respect to future events and financial performance. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from historical experience or from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, economic conditions in the global markets in which we operate, legal challenges or changes related to FedEx Ground’s owner-operators, new U.S. domestic or international government regulation, the impact from any terrorist activities or international conflicts, our ability to effectively operate, integrate and leverage acquired businesses, changes in fuel prices and currency exchange rates, our ability to match capacity to shifting volume levels and other factors which can be found in FedEx Corp.’s and its subsidiaries’ press releases and filings with the SEC.
Reconciliation of Non-GAAP Financial Measures
To GAAP Financial Measures
The company believes that meaningful analysis of our financial performance requires an understanding of the factors underlying that performance and our judgments about the likelihood that particular factors will repeat. Excluding the estimated impact of charges related to cost-reduction actions from our earnings guidance for the fourth quarter of fiscal 2009 will allow more accurate comparisons to our operating performance during the fourth quarter of fiscal 2008. Likewise, excluding the impact of the FedEx Kinko’s-related charges from fiscal 2008 fourth quarter results will allow more accurate comparisons to our earnings guidance for the fourth quarter of fiscal 2009. The table below presents a reconciliation of our presented non-GAAP measures to the most directly comparable GAAP measures.
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