MEMPHIS, Tenn.--Dec. 20, 2006--FedEx Corporation (NYSE: FDX) today
reported earnings of $1.64 per diluted share for the second quarter
ended November 30, compared to $1.53 per diluted share a year ago. The
quarter's results included costs associated with the new pilot labor
contract at FedEx Express. The net effect of this agreement reduced
second quarter earnings by approximately $0.25 per diluted share.
Excluding these costs, second quarter earnings were $1.89 per diluted
share, an increase of 24% from last year's second quarter.
 
FedEx Corp. reported the following consolidated results for the
second quarter: 
    --  Revenue of $8.93 billion, up 10% from $8.09 billion the
        previous year 
    --  Operating income of $839 million, up 6% from $790 million a
        year ago 
    --  Operating margin of 9.4%, down from last year's 9.8%
    --  Net income of $511 million, up 8% from $471 million the
        previous year 
   
Total combined average daily package volume at FedEx Express and
FedEx Ground grew 7% year over year for the quarter, led by ground and
international express package growth.
 
"FedEx continues to deliver outstanding financial results, and I
am confident about our business going forward," said Frederick W.
Smith, chairman, president and chief executive officer of FedEx Corp.
"Package volumes are solid this holiday season, and we see continued
global economic growth in 2007."
 
The company has announced a net 3.5% average price increase on
U.S. domestic and U.S. export express shipments, and a 4.9% average
price increase on FedEx Ground services. These changes will be
effective January 1, 2007. The company also announced increases to
various shipment surcharges.
 
Outlook
With the better-than-expected second quarter results and an
expected strong fourth quarter, management is tightening its annual
earnings guidance range to $6.35 to $6.65 per diluted share. Excluding
the net impact of the second quarter costs associated with the new
pilot labor contract, the updated guidance is $6.60 to $6.90 per
diluted share. For the third quarter, earnings are expected to be
$1.20 to $1.35 per diluted share. For the fourth quarter, earnings are
expected to be $1.98 to $2.13 per diluted share. The capital spending
forecast for fiscal 2007 is $3.1 billion.
 
"Earnings for our second quarter were better than forecast
primarily due to lower than expected fuel prices, slightly stronger
than anticipated growth at FedEx Ground and insurance proceeds related
to Hurricane Katrina," said Alan B. Graf, Jr., executive vice
president and chief financial officer. "Our earnings guidance for the
third quarter recognizes a difficult year-over-year comparison, as
last year's third quarter benefited from the timing lag that exists
between when we purchase fuel and when our indexed fuel surcharges
automatically adjust. December 2005 fuel surcharges at FedEx Express
and FedEx Ground were set during the period fuel prices had spiked
following Hurricane Katrina. We remain optimistic that we will
continue to improve full-year margins and returns during a period of
moderate economic growth."
 
FedEx Express Segment
For the second quarter, the FedEx Express segment reported: 
    --  Revenue of $5.69 billion, up 6% from last year's $5.37 billion 
    --  Operating income of $502 million, up 5% from $476 million a year ago 
    --  Operating margin of 8.8%, down from 8.9% the previous year
 
Operating margin was negatively affected by costs associated with
the new pilot labor contract. The new contract includes signing
bonuses and other upfront compensation of approximately $143 million,
as well as pay increases and other benefit enhancements, which were
partially mitigated by reductions in variable incentive compensation.
These costs more than offset the benefit from revenue growth,
declining fuel prices and revenue management actions.
 
FedEx International Priority (IP) revenue grew 12% for the
quarter, as IP revenue per package grew 6%, primarily due to favorable
exchange rates, a higher rate per pound and an increase in package
weight. IP average daily package volume grew 6%. U.S. domestic revenue
per package increased 3%, driven by a higher rate per pound, while
package volume declined 1%.
 
FedEx Express continues to grow and strengthen its international
network. The company recently acquired ANC Holdings Ltd., a United
Kingdom domestic express transportation company, and entered into an
agreement to acquire Prakash Air Freight Pvt. Ltd., its Indian express
service provider. These strategic investments will expand the
company's offering to customers and deliver additional value to
shareowners.
 
FedEx Ground Segment
For the second quarter, the FedEx Ground segment reported:
    --  Revenue of $1.52 billion, up 16% from last year's $1.31
        billion
    --  Operating income of $191 million, up 17% from $163 million a
        year ago 
    --  Operating margin of 12.6%, up from 12.5% the previous year
 
FedEx Ground average daily package volume grew 14% year over year
in the second quarter due to increased commercial business and the
continued growth in the FedEx Home Delivery service. Yield improved 2%
primarily due to a higher rate per pound, higher fuel surcharges and
increased extra service revenues.
 
Operating margin was higher due to revenue growth, improved
operating results at FedEx SmartPost and lower fuel costs, which more
than offset increased network expansion and legal costs.
 
FedEx Freight Segment
For the second quarter, the FedEx Freight segment reported:
    --  Revenue of $1.23 billion, up 31% from last year's $932 million
    --  Operating income of $138 million, up 2% from $135 million a
        year ago
    --  Operating margin of 11.3%, down from 14.5% the previous year
 
On September 3, FedEx completed the purchase of Watkins Motor
Lines. The operations of Watkins Motor Lines are being rebranded as
FedEx National LTL. Operating margin declined during the quarter, as
the impact of FedEx National LTL, including integration costs, more
than offset the benefit from a property sale gain.
 
Less-than-truckload (LTL) shipments increased 28% year over year
primarily due to the FedEx National LTL acquisition and demand for
FedEx Freight's regional and interregional services. Average daily LTL
shipments at FedEx Freight, excluding FedEx National LTL, continued to
grow in the second quarter, although growth moderated each month
during the quarter. LTL yield improved 11% year over year reflecting
higher yields from longer-haul FedEx National LTL shipments and higher
rates.
 
FedEx Kinko's Segment
 For the second quarter, the FedEx Kinko's segment reported:
     --  Revenue of $519 million, down 2% from last year's $528 million
     --  Operating income of $8 million, down 50% from $16 million a
        year ago
     --  Operating margin of 1.5%, down from 3.0% the previous year
 
FedEx Kinko's revenues decreased year over year primarily due to
lower copy product revenues attributed to decreased demand. The
operating margin decline was primarily due to the base revenue
decline, network expansion costs, employee development and training
costs, and sales workforce reorganization expenses.
 
FedEx Kinko's continues a company-wide effort to refocus resources
on core business priorities, including a multi-year network expansion
using a lower-cost model. The company opened 86 centers in the first
half of the fiscal year with plans for a total of approximately 200
new locations by the end of FY07.
 
Corporate Overview
FedEx Corp. (NYSE: FDX) provides customers and businesses
worldwide with a broad portfolio of transportation, e-commerce and
business services. With annual revenues of $34 billion, the company
offers integrated business applications through operating companies
competing collectively and managed collaboratively, under the
respected FedEx brand. Consistently ranked among the world's most
admired and trusted employers, FedEx inspires its more than 275,000
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
www.fedex.com.
 
Additional information and operating data are contained in the
company's annual report, Form 10-K, Form 10-Qs and second quarter
FY2007 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 20, 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, 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 and
FedEx National LTL businesses, 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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