U.S. package delivery giant FedEx Corp. reported a net income of US$580 million, or $2.01 per diluted share, for the third quarter ended February 28, up 53% from $378 million, or $1.23 per share, in the same period last year.
“We had a very successful peak season as volumes grew across all transportation segments, and our profit improvement programs are moving ahead as scheduled,” said Frederick W. Smith, group chairman, president, and chief executive officer.
But industry watchers said this has not stopped the company from lowering expectations for its full-year outlook, as the strong dollar and increasing fuel expenses may pull down results for the fourth quarter.
Revenue for the third quarter was $11.7 billion, up 4% from $11.3 billion the previous year. Operating income reached $962 million, up 50% from $641 million last year, while operating margin rose 8.2%, up from 5.7% the previous year.
In a statement the company said operating results were buoyed by volume growth in all three transportation segments, lower fuel costs, profit improvement initiatives, milder weather, and reduced pension expense. These improvements were partially offset by an increase in various expenses.
By division, the express segment was essentially flat with revenue of $6.66 billion in Q3, compared to last year’s $6.67 billion, as lower fuel surcharges and unfavorable currency exchange rates more than offset volume and base yield growth. Operating income of $384 million was 129% higher from $168 million a year ago, and operating margin of 5.8% was also a 2.5% increase from the previous year.
Operating results were higher as increased base revenue, lower fuel costs, and an easier winter all contributed to the quarter. In addition, the company continued to benefit from profit improvement initiatives. Partially offsetting these favorable factors were increased variable incentive compensation accruals and aircraft maintenance expenses.
For the third quarter, the ground segment reported revenue of $3.39 billion, up 12% from last year’s $3.03 billion. Operating income rose to $558 million, up 14% from $490 million a year ago, while operating margin spiked 16.4%, up from 16.2% the previous year
Growth was propelled by a 7% average daily volume expansion in the third quarter due to growth in both business-to-business and home delivery services. Operating results increased due to higher revenue per package, volume growth, lower fuel costs, and better weather, partially offset by network expansion costs.
The freight segment, meanwhile, reported revenue of $1.43 billion, up 6% from last year’s $1.35 billion. Operating income amounted to $68 million, up 94% from $35 million a year ago, and operating margin inched up 4.8%, up from 2.6% the previous year.
Less-than-truckload average daily shipments increased 3%, while LTL revenue per shipment grew 3% due to higher rates. Operating results improved due to the positive impacts of higher LTL revenue per shipment and higher average daily LTL shipments.
Alan B. Graf, Jr., group executive vice president and chief financial officer, said they expect continued revenue and earnings growth this year, driven by ongoing improvements in all of its transportation segments, and forecast “record fourth quarter and fiscal year earnings.”
For fiscal year 2015, FedEx projects lower earnings of $8.80 to $8.95 per diluted share, adding that the outlook “assumes continued moderate global economic growth.”
