FedEx fiscal Q3 net income up 125.5% year-over-year to US$521M, net sales up 9.3% to US$10.6B; company cites strong performance in its Ground, Freight, Express segments, lower tax rate, mild winter weather
March 22, 2012
FedEx Corp. (NYSE: FDX) today reported earnings of $1.65 per diluted share for the third quarter ended February 29, which includes a $0.10 per share reversal of a reserve associated with a legal matter at FedEx Express. Last year’s third quarter earnings were $0.73 per diluted share, which included $0.08 per diluted share in costs related to the combination of the company’s FedEx Freight and FedEx National LTL operations. Excluding these one-time items, earnings were $1.55 per diluted share in the third quarter, compared to $0.81 per diluted share a year ago.
“FedEx Corp. results were driven by improving yields, record holiday package shipping and exceptional performance at FedEx Ground,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “We expect our solid performance to continue in our fourth quarter, capping off a strong fiscal year.”
Third Quarter Results
FedEx Corp. reported the following consolidated results for the third quarter:
• Revenue of $10.56 billion, up 9% from $9.66 billion the previous year
• Operating income of $813 million, up 107% from $393 million last year
• Operating margin of 7.7%, up from 4.1% the previous year
• Net income of $521 million, up 126% from $231 million a year ago
Operating income improved due to the continued strong performance of FedEx Ground driven by higher yields and volumes, as well as significantly improved results at FedEx Freight. Operating income also reflects the positive year-over-year impact, predominately at FedEx Express, of a benefit from the timing lag that exists between when fuel prices change and when indexed fuel surcharges automatically adjust. The company also benefitted from a lower tax rate and mild winter weather.
FedEx projects earnings to be $1.75 to $2.00 per diluted share in the fourth quarter and an adjusted $6.35 to $6.60 per diluted share for fiscal 2012. This guidance assumes the current market outlook for fuel prices and moderate growth in the global economy. Including the FedEx Express legal reserve reversal, earnings are expected to be $6.43 to $6.68 per diluted share for fiscal 2012. The company reported earnings of $1.75 per diluted share in last year’s fourth quarter. The capital spending forecast for fiscal 2012 remains $4.2 billion.
“We are pleased with the improved performance at FedEx Ground and FedEx Freight during our third quarter,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “We are evaluating actions to adjust our FedEx Express U.S. domestic network capacity and improve efficiency.”
FedEx Express Segment
For the third quarter, the FedEx Express segment reported:
• Revenue of $6.54 billion, up 8% from last year’s $6.05 billion
• Operating income of $349 million, up 96% from $178 million a year ago
• Operating margin of 5.3%, up from 2.9% the previous year
U.S. domestic revenue per package grew 9% due to higher rate per pound and fuel surcharges, while average daily package volume decreased 4%. International priority (IP) revenue per package grew 5% due to higher fuel surcharges and package weights, while average daily package volume decreased 1%. IP freight average daily pounds increased 4% with revenue per pound up 2% due to higher fuel surcharges. In total, IP average daily package and freight pounds increased 2% and revenue increased 6% year-over-year.
Operating income and margin improved in the quarter, reflecting the year-over-year benefit of the fuel surcharge timing lag and the reversal of a $66 million reserve associated with a legal matter. One additional operating day benefitted this year’s results, while prior year results were negatively impacted by severe winter weather.
FedEx Ground Segment
For the third quarter, the FedEx Ground segment reported:
• Revenue of $2.48 billion, up 14% from last year’s $2.18 billion
• Operating income of $465 million, up 43% from $325 million a year ago
• Operating margin of 18.8%, up from 14.9% the previous year
FedEx Ground average daily package volume grew 5%, driven by increases in FedEx Home Delivery services as well as the business-to-business market. Revenue per package increased 8% primarily due to increased rates and higher fuel surcharges. FedEx SmartPost average daily volume increased 13% primarily due to growth in e-commerce. FedEx SmartPost revenue per package increased 5% primarily due to increased fuel surcharges.
Operating income and margin increased primarily due to increased revenue per package and volume growth. During the year, we continued to shorten transit times by accelerating various lanes throughout the U.S. and Canada, which has led to consistently high on-time service.
FedEx Freight Segment
For the third quarter, the FedEx Freight segment reported:
• Revenue of $1.23 billion, up 10% from last year’s $1.12 billion
• Operating loss of $1 million, compared with an operating loss of
$110 million a year ago
• Operating margin of (0.1%), up from (9.8%) the previous year
Less-than-truckload (LTL) yield increased 6% due to higher LTL fuel surcharges and base yield improvement. LTL average daily shipments increased 2% reflecting sequential improvement during the quarter and favorable comparisons due to severe winter weather in the prior year.
The operating results in the quarter improved significantly as a result of the positive impacts from higher yield and volume, milder winter weather, one additional business day, and ongoing improvements in operational efficiencies. In the prior year quarter, the segment incurred one-time costs of $43 million due to the January 30, 2011 combination of the FedEx Freight and FedEx National LTL operations.
FedEx Corp. (NYSE: FDX) provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenues of $42 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 300,000 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.