FedEx Net Income Surges 33 Percent
Annual Earnings Outlook Raised
MEMPHIS, Tenn., December 21, 2005 … FedEx Corporation (NYSE: FDX) today reported earnings of $1.53 per diluted share for the second quarter ended November 30, compared to $1.15 per diluted share a year ago, an increase of 33%.
FedEx Corp. reported the following consolidated results for the second quarter:
- Revenue of $8.09 billion, up 10% from $7.33 billion the previous year
- Operating income of $790 million, up 32% from $600 million a year ago
- Operating margin of 9.8%, up from last year’s 8.2%
- Net income of $471 million, up 33% from $354 million the previous year
"Customer demand for our broad portfolio of transportation services, a disciplined pricing approach by FedEx and strong productivity gains led to a sharp improvement in our operating margins," said Frederick W. Smith, chairman, president and chief executive officer. "FedEx is also benefiting from solid economic growth year over year in the U.S. and Asian economies, which we expect to continue in 2006."
Last year’s second quarter included two one-time items which negatively affected earnings by a net $0.06 per share: A one-time charge of $48 million or $0.10 per diluted share related to the company’s claim for compensation under the Air Transportation Safety and System Stabilization Act, partially offset by a $0.04 per diluted share tax benefit resulting from the passage of the American Jobs Creation Act of 2004.
Total combined average daily package volume at FedEx Express and FedEx Ground grew 3% year over year for the quarter, led by improved international express package growth. Yield management actions in U.S. deferred services at FedEx Express to improve profitability boosted yields while resulting in lower volume. FedEx Ground volumes were weaker than expected, but strengthened in the last two weeks of November and continue to strengthen in December. The higher FedEx Ground growth trend is expected to continue in the second half of the fiscal year.
FedEx expects third quarter earnings to be $1.15 to $1.30 per diluted share. The company increased its earnings guidance for the year to $5.45 to $5.70 per diluted share from its previous guidance of $5.25 to $5.50 per diluted share, which includes the net effect of a $0.15 per share lease accounting charge in the first quarter. Excluding the impact of the lease accounting charge, earnings for the year are expected to be $5.60 to $5.85 per diluted share. The capital spending forecast for fiscal 2006 remains approximately $2.5 billion.
"We exceeded our original forecast for the second quarter due to outstanding operational performance and the deferral of certain advertising and promotional expenses to the second half of the fiscal year," said Alan B. Graf, Jr., executive vice president and chief financial officer. "Our increased earnings guidance for the full year reflects confidence in our ability to continue executing our business strategy, manage our cost structure and leverage sustained economic growth."
FedEx Express Segment
For the second quarter, the FedEx Express segment reported:
- Revenue of $5.37 billion, up 11% from last year’s $4.83 billion
- Operating income of $476 million, up 43% from $333 million a year ago
- Operating margin of 8.9%, up from 6.9% the previous year
FedEx International Priority (IP) revenue grew 14% for the quarter. IP average daily package volume grew 8%, due to strong growth in Asia and Europe and continuing growth in U.S. export. IP revenue per package grew 5%, primarily due to higher fuel surcharges. U.S. domestic express package revenue increased 8%, as U.S. domestic revenue per package increased 7% and U.S. domestic volume increased 1%. The increase in U.S. domestic revenue per package was mainly driven by higher fuel surcharges and an increase in average rate per pound.
FedEx Express operating margin improved significantly year over year, benefiting from solid growth in IP revenue and significant improvement in productivity. Also, last year’s operating margin was negatively affected by the one-time charge related to the company’s claim for compensation under the Air Transportation Safety and System Stabilization Act.
FedEx Ground Segment
For the second quarter, the FedEx Ground segment reported:
- Revenue of $1.31 billion, up 11% from last year’s $1.17 billion
- Operating income of $163 million, up 21% from $135 million a year ago
- Operating margin of 12.5%, up from 11.5% the previous year
FedEx Ground average daily package volume grew 4% year over year in the second quarter. Yield improved 6% primarily due to the reintroduction of a fuel surcharge, higher extra service revenue and the impact of the January 2005 general rate increase.
The operating margin improvement resulted from higher yields, improved field productivity and stringent expense controls at FedEx Ground, offset in part by investments in new technology and the company’s capacity expansion program. Additionally, in the previous year’s second quarter FedEx Supply Chain Services recorded a $10 million charge for the termination of a vendor agreement.
FedEx Freight Segment
For the second quarter, the FedEx Freight segment reported:
- Revenue of $932 million, up 14% from last year’s $820 million
- Operating income of $135 million, up 32% from $102 million a year ago
- Operating margin of 14.5%, up from 12.5% the previous year
Less-than-truckload (LTL) yield improved 8% year over year, reflecting incremental fuel surcharges and higher rates. Average daily LTL shipments increased 5% year over year. The growth in yield and shipments, combined with system productivity gains, led to an increase in operating margin.
LTL shipment growth is benefiting from increasing demand for features such as FedEx Freight Advance Notice, launched in September 2005, and the company’s no-fee money-back guarantee. These features enhance FedEx Freight’s leadership position in the regional LTL market and further differentiate it from the competition by providing certainty, reliability and unprecedented shipment information.
FedEx Kinko’s Segment
For the second quarter, the FedEx Kinko’s segment reported:
- Revenue of $528 million, up 1% from last year’s $524 million
- Operating income of $16 million, down 45% from $29 million a year ago
- Operating margin of 3.0%, down from 5.7% the previous year
The FedEx Kinko’s revenue increase for the quarter was due to continued growth from package acceptance revenues and the benefit of the conversion of certain FedEx World Service Centers to FedEx Kinko’s Ship Centers. This growth was mostly offset by a decline in copy revenues, due in part to a competitive pricing environment.
Operating margin was negatively affected by the decline in copy product line revenues and costs associated with internal technology enhancements and product offering initiatives.
FedEx Corp. (NYSE: FDX) provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenues of $31 billion, the company offers integrated business applications through operating companies competing collectively and managed collaboratively, under the respected FedEx brands. Consistently ranked among the world’s most admired and trusted employers, FedEx inspires its more than 260,000 employees and contractors 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 fedex.com.
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Additional information and operating data are contained in the company’s annual report, Form 10-K, Form 10-Qs and second quarter FY2006 Statistical Book. These materials, as well as a Webcast of the earnings release conference call to be held at 8:30 a.m. EST on December 21, are available on the company’s Web site at www.fedex.com/us/investorrelations. A replay of the conference call Webcast will be posted on our Web site following the call.
Certain statements in this press release may be considered forward-looking statements, such as statements relating to management’s views with respect to future events and financial performance. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from historical experience or from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, economic conditions in the global markets in which we operate, the effect of adverse weather on our operations, new U.S. domestic or international government regulation, the impact from any terrorist activities or international conflicts, our ability to effectively operate, integrate and leverage the FedEx Kinko’s business, the impact of changes in fuel prices and currency exchange rates, our ability to match capacity to shifting volume levels and other factors which can be found in FedEx Corp.’s and its subsidiaries’ press releases and filings with the SEC.
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