American parcel giant FedEx Corp. reported a consolidated net income of US$459 million, or $1.45 per diluted share, for the first quarter ended August 31, down 1 percent from $464 million, or $1.46 per share, year-on-year, as economic turmoil affected its express division.
Despite profitable ground and freight divisions in the first quarter, the Tennessee-based company lowered its full-year outlook amid the slowing global economy.
“As we announced on September 4, weakness in the global economy constrained revenue growth at FedEx Express during our first quarter and affected our earnings,” said Frederick Smith, FedEx chairman, president, and chief executive officer. “Meanwhile, our FedEx Ground and FedEx Freight segments performed well, with both improving their year-over-year operating margins.”
He added that they are “taking further actions to reduce costs and adjust our networks to match current and anticipated shipment volumes.”
FedEx reported revenue of $10.79 billion for the first quarter, up 3 percent from $10.52 billion the previous year. Operating income was $742 million, up 1 percent, but operating margin contracted to 6.9 percent from 7 the previous year.
“Earnings for the first quarter were below our expectations as weak global economic conditions dampened revenue growth, drove a shift by our customers to our deferred services and outpaced our near-term ability to reduce FedEx Express operating costs to match demand levels,” said Alan Graf, Jr., FedEx executive vice president and chief financial officer.
The express segment reported revenue of $6.63 billion for the first quarter, up 1 percent from last year’s $6.59 billion. Operating income of $207 million shrank by 28 percent from $288 million, and operating margin of 3.1 percent was smaller than last year’s 4.4 percent.
For the first quarter, the ground segment reported revenue of $2.46 billion, up 8 percent from last year’s $2.28 billion. Operating income of $445 million also went up by 9 percent from $407 million a year ago, and operating margin of 18.1 percent was higher than the 17.9 percent recorded the previous year.
Operating income increased due to higher ground revenue per package and increased volume.
For the freight segment, revenue reached $1.4 billion, up 5 percent from last year’s $1.33 billion. Operating income of $90 million was 114 percent higher than the $42 million booked a year ago. Operating margin of 6.4 was higher than the 3.2 percent of the previous year.
“Operating income and margin increased primarily due to profitable volume growth, higher yield and continued improvements in operational efficiencies,” FedEx said.
The company projects earnings to be $1.30 to $1.45 per diluted share in the second quarter, lower than the earnings of $1.57 per diluted share in last year’s second quarter.
The full-year forecast also has been cut, now pegged at $6.20 to $6.60 per diluted share for fiscal 2013, compared to the previous full-year forecast of $6.90 to $7.40 per diluted share.
“This guidance assumes the current market outlook for fuel prices and does not include the impact of the cost reduction programs currently under review,” it added. The capital spending forecast for fiscal 2013 remains $3.9 billion.
On rate hikes for the fiscal year, the express division will increase shipping rates by a net average of 3.9 percent for U.S. domestic, U.S. export and U.S. import services effective January 7, 2013. The ground and SmartPost pricing changes for 2013 will be announced later this year. The freight segment implemented a 6.9 percent general rate increase on July 9, 2012.
Photo courtesy of FedEx Corp.
