On June 16th FedEx released their latest financial results and held an earnings call with financial analysts. Following last week’s announcement, PARCEL asked Doug Kahl, Vice President of TranzAct Technologies to share his thoughts on FedEx’s results.
Fourth Quarter and Full Year Earnings Release
"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."
In the release, FedEx provided financial and operating highlights for each business segment (Express, Ground, Freight) as well as overall corporate performance. Selected highlights include:
Latest Quarterly Results (FQ4 ending 5/31/10):
• Earnings per share of $1.33 versus ($2.84) last year
• Revenue of $9.4b, up 20% from $7.9b last year
• Operating income of $696m, up from ($849m) last year
• Operating margin of 7.4%, up from (10.8%) last year
o Express margin of 7.0%, up from (2.8%) last year
o Ground margin 16.3%, up from 11.9% last year
Revenue for fiscal 2010 of $34.7b, down 2% from FY09, key segments:
• Express $21.6b (-4%)
• Ground $7.4b (+6%)
• Freight $4.3b (-2%)
• Services $1.8b (-10%)
Average Daily Package Volume / Yield, revenue per package by segment (+/- growth):
• US Overnight Envelope 614,000 (-2%) at $10.47 (-10%)
• US Overnight Box 1.2m (+3%) at $19.00 (-10%)
• US Deferred 867,000 (+2%) at $11.70 (-10%)
• Intl Priority 523,000 (+10%) at $53.10 (-8%)
• Ground 3.5m (+3%) at $7.73 (-0-)
• SmartPost 1.2m (+48%) at $1.56 (-14%)
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. 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.
Earnings Call with Analysts
Further commentary was provided during the conference call with the financial analyst community.
The company stated they have positive momentum and feel gradual economic improvement with an emphasis on the global economy will bring further positive results. At points during the presentation and Q&A reference was made to key assumptions on their outlook- stable fuel prices and continued moderate recovery in the global economy. In the call, Fred Smith stated,” Our chief economist forecasts FY ‘11 GDP growth will be 3.2% compared to less than 1% in FY ‘10. Industrial production, to which our shipment volume closely correlates, is expected to rise from a negative 3.3% to a positive 5%. We think the restocking process in place will continue in the short-term together with gains in consumption and equipment sales. We believe the improving economy will result in a more stable pricing environment, enhancing our ability to improve yields across all of our transport segments.” There was a refreshing sense of economic optimism on the call.
There was also a clear message on current initiatives, particularly pertaining to yield management. There is no escaping this. Looking at the package volume and yield numbers above, the across the board trend for last year was negative yields. Whether the discussion pertained to Express, Ground or Freight, the topic of yield was mention two dozen times during this call. In Ground, yield increases due to fuel surcharges, extra service fees and higher average weights; while in Freight, yields were lower on recent revenue and volume growth. FedEx appears to be disciplined in their review of accounts across all business segments regarding performance to qualifier levels and maintaining acceptable margins.
Another point made on this call that has been mentioned in the past was “getting the right customer in the right network.” FedEx continues to improve the value of the product. One example given was the improvement in 7,000 Ground lanes last year. Also consider their Capital Expenditure plan and the investment in the Boeing 777 to improve international efficiencies and provide later cut-off times to pick-up and deliver goods across the globe.
What Does This Mean for Shippers?
Understand your contracts. Not just the discounts, but the qualifiers as well as the application of the pricing and any concessions to your accounts.
Make sure you have access to information. Whether the visibility comes from your own analysis program, through the carriers reporting tools, use of a consultant or freight payment firm; now more then ever, you’ve got to know your shipping characteristics. You also need to see how these characteristic patterns have changed.
Are you matching your shipment requirements to the portfolio of carrier services in order to control your total cost?
If investments are being made in expensive aircraft, do you have volume that can be fed into these networks? Where is the carrier investing in specific intra-country expansion and does your supply chain have operations there that could favorably position your business?
Purchased transportation has recently increased and not just for FedEx. No matter which carrier(s) you use, what improvements can be made to forecasting your inbound and outbound activity and can this data be shared with your carrier(s) to help them plan their operations?
The pendulum continues the swing from a buyer’s to a seller’s market across all transportation modes. With that, the swing from cost reduction to cost control follows. It’s time to put analytics to work. You can’t manage or improve what you can’t see. Just because you can see it, do you know what to do with it? And if so, share that information in a collaborative manner to help control costs.
Sources:
FedEx Investor News- FedEx Corp. Reports Higher Fourth Quarter and Full Year Earnings
Transcript of Presentation and Q&A
Fourth Quarter and Full Year Earnings Release
"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."
In the release, FedEx provided financial and operating highlights for each business segment (Express, Ground, Freight) as well as overall corporate performance. Selected highlights include:
Latest Quarterly Results (FQ4 ending 5/31/10):
• Earnings per share of $1.33 versus ($2.84) last year
• Revenue of $9.4b, up 20% from $7.9b last year
• Operating income of $696m, up from ($849m) last year
• Operating margin of 7.4%, up from (10.8%) last year
o Express margin of 7.0%, up from (2.8%) last year
o Ground margin 16.3%, up from 11.9% last year
Revenue for fiscal 2010 of $34.7b, down 2% from FY09, key segments:
• Express $21.6b (-4%)
• Ground $7.4b (+6%)
• Freight $4.3b (-2%)
• Services $1.8b (-10%)
Average Daily Package Volume / Yield, revenue per package by segment (+/- growth):
• US Overnight Envelope 614,000 (-2%) at $10.47 (-10%)
• US Overnight Box 1.2m (+3%) at $19.00 (-10%)
• US Deferred 867,000 (+2%) at $11.70 (-10%)
• Intl Priority 523,000 (+10%) at $53.10 (-8%)
• Ground 3.5m (+3%) at $7.73 (-0-)
• SmartPost 1.2m (+48%) at $1.56 (-14%)
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. 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.
Earnings Call with Analysts
Further commentary was provided during the conference call with the financial analyst community.
The company stated they have positive momentum and feel gradual economic improvement with an emphasis on the global economy will bring further positive results. At points during the presentation and Q&A reference was made to key assumptions on their outlook- stable fuel prices and continued moderate recovery in the global economy. In the call, Fred Smith stated,” Our chief economist forecasts FY ‘11 GDP growth will be 3.2% compared to less than 1% in FY ‘10. Industrial production, to which our shipment volume closely correlates, is expected to rise from a negative 3.3% to a positive 5%. We think the restocking process in place will continue in the short-term together with gains in consumption and equipment sales. We believe the improving economy will result in a more stable pricing environment, enhancing our ability to improve yields across all of our transport segments.” There was a refreshing sense of economic optimism on the call.
There was also a clear message on current initiatives, particularly pertaining to yield management. There is no escaping this. Looking at the package volume and yield numbers above, the across the board trend for last year was negative yields. Whether the discussion pertained to Express, Ground or Freight, the topic of yield was mention two dozen times during this call. In Ground, yield increases due to fuel surcharges, extra service fees and higher average weights; while in Freight, yields were lower on recent revenue and volume growth. FedEx appears to be disciplined in their review of accounts across all business segments regarding performance to qualifier levels and maintaining acceptable margins.
Another point made on this call that has been mentioned in the past was “getting the right customer in the right network.” FedEx continues to improve the value of the product. One example given was the improvement in 7,000 Ground lanes last year. Also consider their Capital Expenditure plan and the investment in the Boeing 777 to improve international efficiencies and provide later cut-off times to pick-up and deliver goods across the globe.
What Does This Mean for Shippers?
Understand your contracts. Not just the discounts, but the qualifiers as well as the application of the pricing and any concessions to your accounts.
Make sure you have access to information. Whether the visibility comes from your own analysis program, through the carriers reporting tools, use of a consultant or freight payment firm; now more then ever, you’ve got to know your shipping characteristics. You also need to see how these characteristic patterns have changed.
Are you matching your shipment requirements to the portfolio of carrier services in order to control your total cost?
If investments are being made in expensive aircraft, do you have volume that can be fed into these networks? Where is the carrier investing in specific intra-country expansion and does your supply chain have operations there that could favorably position your business?
Purchased transportation has recently increased and not just for FedEx. No matter which carrier(s) you use, what improvements can be made to forecasting your inbound and outbound activity and can this data be shared with your carrier(s) to help them plan their operations?
The pendulum continues the swing from a buyer’s to a seller’s market across all transportation modes. With that, the swing from cost reduction to cost control follows. It’s time to put analytics to work. You can’t manage or improve what you can’t see. Just because you can see it, do you know what to do with it? And if so, share that information in a collaborative manner to help control costs.
Sources:
FedEx Investor News- FedEx Corp. Reports Higher Fourth Quarter and Full Year Earnings
Transcript of Presentation and Q&A
