Wednesday, December 19, 2012

FedEx reports volume gains but declines in Express operating income persist

External factors continue to affect FedEx earnings. For the quarter ending November 30, overall revenue increased 5% to $11.1bn while operating income declined 8% to $718m. The decline in operating income was a result of Superstorm Sandy, negative economic conditions and customers shifting to economy services.

The largest division, FedEx Express, reported revenue up 4% to $6.86bn but operating income down 33% to $230m. Revenue increases were attributed to FedEx Trade Networks and recent acquisitions. Operating income decline was due to lower-yielding international services, Superstorm Sandy and higher pension costs. FedEx international export average daily package volume grew 6% driven by increases in FedEx International Economy from Europe and Asia and by increases in FedEx International Priority from Asia.  FedEx noted airfreight out of Asia Pacific is doing “quite well” with a lot of it from high-tech customers.

In December, FedEx Express entered into an agreement with Boeing to purchase 4 incremental 767 freighters to be delivered in 2015. As part of that agreement, Express is also deferring the delivery of 2 firm 777 freighter orders for 1 year, from 2015 to 2016.

FedEx Ground revenue increased 11% to $2.59bn with operating income up 4% to $412m. Average daily volume increased 8% with FedEx Home Delivery and business-to-business services being credited with this increase. This volume increase seems to indicate market share gain.  FedEx SmartPost also continued to report strong average daily volume, 17% increase thanks to the popularity of ecommerce. When asked about possible market share gains at the expense of UPS’ upcoming negotiations with Teamsters, FedEx said that it had “picked up a number of significant customers that have, obviously, stated concerns over the UPS situation”. The company did note however, that this was not the primary reason for the healthy increase in volume.

FedEx Freight benefited with a 4% increase in revenue to $1.38bn and operating income increasing 90% to $76m. Average daily shipments increased 2%.

The holiday season appears to be a positive one for FedEx. December 17th, 19.8m shipments were moved worldwide. In fact, FedEx moved more than 19m shipments on December 10 and November 26 which was Cyber Monday. For Cyber Monday alone, FedEx Ground moved 8.7m packages while SmartPost moved 6.1m packages.

Finally, outlook for the company is uncertain as it continues its restructuring process. “We are steadfastly committed to the $1.7bn of annual profit improvement actions, primarily at FedEx Express, which we announced in October,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “We expect to begin to see the benefits of these actions in fiscal 2014, with a significant portion of the profit improvement achieved by the end of fiscal 2015. Meanwhile, the mounting uncertainty in the U.S. related to fiscal policies and their potential to impact earnings by further restraining economic growth is a concern.”