Meanwhile, the Ground division noted revenue increased 10% to $2.85bn with operating income up 3% to $424m. However, operating margin slipped to 14.9% from 15.9% the previous year. Revenue per package increased 2% due to rate increases and higher residential surcharges. Operating margin declined primarily due to this year's later start of the holiday shipping season, as Cyber Week occurred in December this year versus November last year.
Finally, FedEx Freight noted a 4% increase in revenue of $1.4bn with operating income up 1% but operating margin slipped to 5.4% from 5.5% last year. Average daily shipments increased 4% but due to lower fuel surcharges, higher weight per shipment and shorter length of haul resulted in 1% decline in LTL revenue per hundredweight.
While it appears that FedEx is making good headway in its profit improvement initiative it seems that the company is in a kind of “holding pattern” that is, the majority of its revenue increase appears to be due to mostly rate and accessorial fee hikes. Perhaps this is a result of the sluggish economy or it may be the company’s choice to be more selective in what types of business to take on. For example, according to the earnings call, Mike Glen, President and CEO of FedEx Services noted the company elected not to participate in some product releases that would have traveled in its distribution services capability. That decision was driven by their revenue management and yield improvement programs. Furthermore, the company is utilizing FedEx Trade Networks more and more to place less profitable cargo in the bellies of passenger airplanes or by ocean movement. Regardless, the company will need to figure out other means of increasing revenue while at the same time increasing profit and profit margins.
FedEx noted optimism in its outlook. “We remain on track to deliver a solid increase in earnings this fiscal year,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “FedEx Express reported significant year-over-year improvement in earnings during the quarter, aided by continued execution of our profit improvement programs and by ongoing cost reduction initiatives. We continue to look for additional ways to improve efficiencies and remain committed to increasing long-term shareowner value.”