FedEx (FDX) Earnings Offer Positive View of Global Economy
Although FedEx (NYSE: FDX) has some internal expenses which will cause the shipping giant to miss Wall Street expectations (the stock is down 2.5% in pre-market trading), business activity looked good in the first quarter ending only 16 days ago.
Here are some data points to note:
- Revenue rose 20% to $9.43 billion versus analyst expectations of $9 billion.
- The crown jewel FedEx Express division increased revenues 23%. Average-daily-package volume jumped 23%, with Asian exports leading the charge. U.S. daily volume edged up 1%.
- Freight revenues were up 30%.
- FedEx Ground revenues jumped 15% on the back of a 7% rise in daily package volume.
- FedEx International Priority Package volume grew 23% in Q4.
Based on this information, the global economy has not yet slipped into a double-dip. But with Europe slowing quickly and China depending on the EU for ~20% of exports, next quarter’s data may be more telling.
Here is the full press release noting more company specific data:
MEMPHIS, Tenn., June 16, 2010 … FedEx Corp. (NYSE: FDX) today reported earnings of $1.33 per diluted share for the fourth quarter ended May 31. Last year, the company reported a fourth quarter loss of $2.82 per diluted share, including $3.46 per diluted share of charges resulting primarily from the impairment of goodwill and aircraft. Excluding these charges, fourth quarter earnings were $0.64 per diluted share a year ago.
“FedEx delivered strong results in our fourth quarter, thanks to sequential growth in package volume and our ability to leverage our unique global networks to take advantage of a recovering economy,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “We ended our fiscal year a stronger company, and I am confident FedEx is very well positioned for future revenue and earnings growth.”
Fourth Quarter Results
FedEx Corp. reported the following consolidated results for the fourth quarter:
- Revenue of $9.43 billion, up 20% from $7.85 billion the previous year
- Operating income of $696 million, up from an operating loss of $849 million last year
- Operating margin of 7.4%, up from (10.8%) the previous year
- Net income of $419 million, up from last year’s net loss of $876 million
Earnings increased as a result of stronger shipment growth in international express and continued growth at FedEx Ground. An operating loss at FedEx Freight, the reinstatement of certain employee compensation programs and higher aircraft maintenance expenses impacted the quarter’s results.
Full Year Results
FedEx Corp. reported the following consolidated results for the full year:
- Revenue of $34.7 billion, down 2% from $35.5 billion the previous year
- Operating income of $2.0 billion, up from $747 million last year
- Net income of $1.18 billion, up from last year’s $98 million
- Earnings per share of $3.76, up from $0.31 per share a year ago ($3.76 per share excluding the impact of impairment and other charges-see table)
Capital spending for fiscal 2010 was $2.8 billion, with $1.5 billion of investments largely related to more fuel-efficient aircraft, including the delivery of six Boeing 777Fs for use in the international network and 12 Boeing 757s.
FedEx projects earnings to be $0.85 to $1.05 per diluted share in the first quarter and $4.40 to $5.00 per diluted share for fiscal 2011. This guidance assumes the current market outlook for fuel prices and a continued moderate recovery in the global economy. The company reported earnings of $0.58 per diluted share in last year’s first quarter. The capital spending forecast for fiscal 2011 is $3.2 billion, which includes the expected delivery of six Boeing 777Fs and 16 Boeing 757s, along with investments in information technology, vehicles and facilities in support of the company’s global growth strategy.
“We expect continued improvement in both revenue and earnings in fiscal 2011,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “Resumed growth in industrial production and global trade is increasing demand for our transportation services, and yield management remains a top priority across all of our operating companies. However, we expect the growth in earnings in fiscal 2011 to be constrained by significant increases in fixed pension and volume-related aircraft maintenance expenses, along with higher anticipated healthcare costs. In addition, our earnings guidance includes increased costs related to the planned reinstatement of various employee compensation programs.”
The company expects pension and retiree medical expenses to increase approximately $260 million year over year due to a lower discount rate. However, cash contributions to U.S. pension plans are expected to decline from approximately $850 million in fiscal 2010 to approximately $500 million in fiscal 2011.
“We remain fully focused on improving yields, margins, returns and cash flow. Our cash flow from operations was sufficient to fund our fiscal 2010 capital investments and we expect this to be the case again in fiscal 2011,” said Graf.
FedEx Express Segment
For the fourth quarter, the FedEx Express segment reported:
- Revenue of $5.88 billion, up 23% from last year’s $4.80 billion
- Operating income of $413 million, up from an operating loss of $136 million a year ago
- Operating margin of 7.0%, up from (2.8%) the previous year
FedEx International Priority® (IP) average daily package volume increased 23%, led by exports from Asia. IP revenue per package grew 6% due to higher weight per package, higher fuel surcharges and a favorable exchange rate impact. U.S. domestic revenue per package grew 8% due to higher fuel surcharges and improved weight per package, while average daily package volume increased 1%.
Operating profit and margin improvements were driven by volume and revenue growth, particularly in higher-margin IP package and freight services. Results also include the partial reinstatement of certain employee compensation programs and higher aircraft maintenance expenses, primarily due to increased utilization. Last year’s fourth quarter operating income and margin were negatively impacted by one-time costs of $260 million associated with aircraft-related charges and severance programs.
FedEx Express added a ninth scheduled daily transpacific frequency in April, utilizing the capabilities of Boeing 777F aircraft. This additional frequency provides needed capacity from Asia to the U.S, and allows best-in-market cut-off times. Also in April, a third scheduled daily flight was added from Asia to Europe, providing the first-in-market next-day service from Hong Kong to all of Europe.
FedEx Ground Segment
For the fourth quarter, the FedEx Ground segment reported:
- Revenue of $1.96 billion, up 15% from last year’s $1.70 billion
- Operating income of $319 million, up 57% from $203 million a year ago
- Operating margin of 16.3%, up from 11.9% the previous year
FedEx Ground average daily package volume grew 7% in the fourth quarter driven by increases in the business-to-business market and the FedEx Home Delivery service. Yield increased 5% primarily due to higher fuel surcharges. FedEx SmartPost average daily volume increased 23%, with yield increasing 6%.
Operating income and margin increased due to higher package yield and volume, as well as lower self-insurance expenses and improved productivity.
FedEx Freight Segment
For the fourth quarter, the FedEx Freight segment reported:
- Revenue of $1.23 billion, up 30% from last year’s $948 million
- Operating loss of $36 million, compared with an operating loss of $106 million a year ago
- Operating margin of (2.9%), compared with (11.2%) the previous year
Less-than-truckload (LTL) average daily shipments increased 34% and LTL yield declined 6% year over year due to the effects of discounted pricing.
Operating losses in the quarter were driven by lower yields and higher volume-related costs, as significantly higher shipment levels required increased purchased transportation and other expenses. The quarter’s operating loss also reflects an $18 million impairment charge related to the goodwill associated with the acquisition of Watkins Motor Lines (now FedEx National LTL). Last year’s results included $100 million of charges, mostly related to impairment of goodwill associated with the acquisition of Watkins Motor Lines.
FedEx Services Segment
FedEx Services segment revenue for the fourth quarter, which included the operations of FedEx Office, was down 6% year over year, due to the September 1, 2009 realignment of FedEx SupplyChain Systems to the FedEx Express reporting segment and declines in copy product revenues.
Last year’s fourth quarter results for FedEx Services included an $810 million goodwill impairment charge related to the acquisition of Kinko’s (now FedEx Office).