Slowing economic trends resulted in yet another
disappointing earnings report from a major carrier as FedEx reported
year-ending and quarterly earnings for the period ending May 31. For the fourth quarter, revenue increased 4%
to $11bn while operating income declined 4% to $856m. For the year, revenue
increased almost 9% to $42.7bn and operating income was $3.2bn, a 34% increase
over the prior period.
The slowing airfreight market negatively impacted the
company’s Express division. Prior to today’s earning report, the company had
reported the retirement of older aircraft within its US domestic express market
and plans for restructuring its network in order to match capacity with the
reduced demand for freight. This aircraft retirement mark down attributed to
the decline in operating income. While revenue increased for both quarter and
year, thanks to surcharges and rate increases, average daily volumes declined.
Domestic express average daily volumes declined 4% while International Priority
average daily volumes declined almost 3%. The Asia-Pacific tradelane was the
primary culprit for the International Priority volume decline. Average daily volume did, however, increase
for International Domestic which includes intra- Asia and intra-Europe trade.
Volume increased over 40% however, revenue per package declined almost 9%. This
decline may be attributed to the growing competition within the intra-Asia
market in particular. On a rather positive note, despite the economic problems
Europe is facing, FedEx management commented that the region remained very
profitable and continues to do well.
FedEx Ground reported strong data. Revenue increased 9% to
$2.5bn during the quarter and almost 13% to $9.6bn for the year. Average daily
volume increased 4% for the year and 3% for the quarter.
The FedEx Freight division also reported a positive quarter
and yearly data. For the quarter, revenue was up 7% and for the year it was up
over 7.5%. Average daily volumes were up 4% for the quarter but down 1.3% for
the year.
The
outlook for the calendar year remains challenging as the economy continues to
falter and freight demand softens.
According to CEO and President, Fred Smith, ““In fiscal
2013, we will continue our focus on improving our operating efficiencies and
our financial performance across all of our businesses, while simultaneously
enhancing our service capabilities. We remain absolutely committed to higher
earnings, margins, cash flows and returns.” It is expected the company will
continue to fine tune networks across all of its divisions world-wide with this
focus in mind. Although no details of the company’s domestic express network
restructuring plans were given in today’s call, the first part of the plan has
already taken place – that of retiring older aircraft – it’s likely additional
tasks are also underway but the company plans to wait until its investor’s
conference in October to discuss further.
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