Tuesday, June 19, 2012

Slowing economic trends affects FedEx Express earnings

Slowing economic trends results in declines in Express volume and restructuring of FedEx’s US domestic Express division

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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