FedEx reports 11% rise in Q3 revenue

However, FedEx Corp chairman, president & CEO Frederick Smith said that continued growth in the global economy is driving solid revenue gains in FedEx’s transportation businesses, and the company expects strong demand for its services to boost the group’s financial performance in the fourth quarter.

FedEx Corp

• Revenue up 11% to $9.66 billion (Q3 2010: $8.7b)
• Operating income down 6% to $393 million (Q3 2010: $416m)
• Operating margin of 4.1% (Q3 2010: 4.8%)
• Net income down 3% to $231 million (Q3 2010: $239m)

While yields grew in all transportation segments, unusually severe winter storms during the quarter disrupted operations, reduced shipping volume and increased costs, impacting year-on-year results.

Earnings were also reduced by costs related to the January 2011 combination of FedEx Freight and FedEx National LTL operations, including lease termination costs and severance expenses.

FedEx Express

• Revenue up 11% to $6.05 billion (Q3 2010: $5.44bn)
• Operating income down 33% to $178 million (Q3 2010: $265m)
• Operating margin of 2.9% (Q3 2010: 4.9%)

Operating income and margin were negatively impacted by increased aircraft maintenance, the reinstatement of certain employee compensation programs, higher employee benefits expenses and the negative impact of severe winter weather, which more than offset strong revenue growth.

During the quarter, FedEx completed the acquisition of the logistics, distribution and express businesses of AFL Pvt Ltd and its affiliate, Unifreight India Pvt Ltd. This acquisition strengthens FedEx’s domestic transportation capabilities in India.

FedEx Ground

• Revenue up 14% to $2.18 billion (Q3 2010: $1.91bn)
• Operating income up 26% to $325 million (Q3 2010: $258m)
• Operating margin of 14.9% (q3 2010: 13.5%)

Operating income and margin increased primarily due to higher package yield and volume. Current year results were also favourably impacted by one additional operating day.

FedEx Freight

• Revenue up 8% to $1.12 billion (Q3 2010: $1.04bn)
• Operating loss of $110 million (Q3 2010: loss of $107m)
• Operating margin of (9.8%), compared with (10.3%) Q3 2010

LTL yield increased by 11%, primarily due to yield management initiatives, while  LTL average daily shipments declined by 6% as a result of the yield management initiatives and the severe winter weather.

On January 30th, 2011, FedEx Freight and FedEx National LTL combined operations, launching a new unified LTL freight network. As a result of this combination, the segment incurred one-time costs of $43 million during the quarter and $130 million FY due primarily to lease termination costs and severance expenses. The operating loss in the quarter includes these costs.

Outlook

FedEx expects earnings could be affected by the impact of the ongoing political turmoil in the Middle East and North Africa on fuel prices and the economy, as well as the short-term impact of the earthquake and tsunami in Japan on operational costs, shipping patterns and the global economy.