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reported earnings of $1.35 per diluted share for the third quarter
ended February 28, compared to $1.38 per diluted share a year ago.
Third quarter results were negatively impacted by a slowing economic
environment, lower fuel surcharges and severe winter storms, with the
storm impact estimated to be $0.06 per diluted share. Results for the
quarter also include an $0.08 per diluted share benefit from a
reduction in the company's effective tax rate.
FedEx Corp. reported the following consolidated results for the
third quarter:
- Revenue of $8.59 billion, up 7% from $8.00 billion the previous year
- Operating income of $641 million, down 10% from $713 million a year ago
- Operating margin of 7.5%, down from last year's 8.9%
- Net income of $420 million, down 2% from $428 million a year ago
Total combined average daily package volume at FedEx Express and
FedEx Ground grew 4% year over year for the quarter, led by ground and
international express package growth.
"The
third quarter, and we saw continued adjustments in the automotive and
housing markets. I believe, however, this represents a healthy
transition for the economy as it phases into a more sustainable growth
rate," said Frederick W. Smith, FedEx Corp. chairman, president and
chief executive officer. "FedEx is in excellent position to take full
advantage of global economic-growth trends and deliver overall
outstanding financial results in the long run."
Outlook
For the fourth quarter, earnings are expected to be $1.93 to $2.08
per diluted share, while earnings for the full year are expected to be
$6.45 to $6.60 per diluted share. Excluding the net impact of the
costs associated with the new pilot labor contract, the updated
guidance for fiscal 2007 is $6.70 to $6.85 per diluted share, an
increase of 12% to 15% year over year excluding the impact of last
year's non-cash lease accounting charge. The capital spending forecast
for fiscal 2007 is $3.0 billion.
"Long-term we continue to maintain our goal of 10% to 15% annual
earnings per share growth," said Alan B. Graf, Jr., executive vice
president and chief financial officer. "However, FedEx earnings growth
in our upcoming fiscal 2008, excluding the 2007 net impact of the new
pilot contract, may be below our long-term earnings target due to
slower economic growth and planned investments in our businesses.
Regardless, we remain highly focused on improving margins, cash flow
and returns and are confident that we can achieve our long term
earnings goals once economic conditions improve."
FedEx Express Segment
For the third quarter, the FedEx Express segment reported:
- Revenue of $5.52 billion, up 3% from last year's $5.34 billion
- Operating income of $391 million, down 12% from $446 million a year ago
- Operating margin of 7.1%, down from 8.4% the previous year
FedEx International Priority (IP) revenue grew 7% for the quarter,
as IP revenue per package grew 4%, primarily due to favorable exchange
rates, an increase in package weights and a higher rate per pound,
offset by lower fuel surcharge. IP average daily package volume grew
3%.
in rate per pound were offset by lower fuel surcharge and changes in
product mix.
Operating margin declined primarily due to lower revenue growth,
the timing impact of fuel surcharges and severe winter weather. Last
year's third quarter benefited from the timing lag that exists between
when the company purchases fuel and when indexed fuel surcharges
automatically adjust. December 2005 fuel surcharges were set during
the period fuel prices had spiked following Hurricane Katrina.
During the quarter, FedEx completed the acquisitions of ANC
Holdings Ltd., a
company, and Prakash Air Freight Pvt. Ltd., its Indian express service
company. Neither acquisition materially affected segment financial
results for the quarter. However, the increase in purchased
transportation was primarily driven by these acquisitions. FedEx
Express also completed the acquisition of the express business of
express service beginning in May 2007. These strategic investments
will expand the company's global service offerings and deliver
additional value to shareowners.
FedEx Ground Segment
For the third quarter, the FedEx Ground segment reported:
- Revenue of $1.52 billion up 12% from last year's $1.36 billion
- Operating income of $196 million, up 5% from $187 million a year ago
- Operating margin of 12.9%, down from 13.7% the previous year
FedEx Ground average daily package volume grew 9% year over year
in the third quarter due to increased commercial business and the
continued strong growth in the FedEx Home Delivery service. Yield
improved 2% primarily due to the impact of general rate increases and
extra service revenues.
Operating margin was lower due to the timing impact of fuel
surcharges, increased purchased transportation costs, severe winter
weather and higher expenses associated with network expansion, which
more than offset improved results at FedEx SmartPost.
FedEx Freight Segment
For the third quarter, the FedEx Freight segment reported:
- Revenue of $1.10 billion, up 30% from last year's $848 million
- Operating income of $50 million, down 32% from $73 million ayear ago
- Operating margin of 4.5%, down from 8.6% the previous year
Less-than-truckload (LTL) shipments increased 20% year over year
due to the Watkins acquisition (now rebranded as FedEx National LTL).
Excluding FedEx National LTL, average daily LTL shipments at FedEx
Freight regional were down slightly year over year. LTL yield improved
12% year over year reflecting higher yields from longer-haul FedEx
National LTL shipments and higher rates.
Operating margin declined during the quarter primarily due to
operating losses at FedEx National LTL, which resulted from softening
volumes and ongoing investments to re-engineer its network. Severe
winter weather also impacted operating income and margin.
FedEx Kinko's Segment
For the third quarter, the FedEx Kinko's segment reported:
- Revenue of $485 million, down 3% from last year's $501 million
- Operating income of $4 million, down 43% from $7 million a year ago
- Operating margin of 0.8%, down from 1.4% the previous year
The FedEx Kinko's revenue decrease for the quarter was primarily
due to declines in copy product revenues, which more than offset
higher package acceptance fees paid by FedEx Express and FedEx Ground.
Operating margin was negatively impacted by the copy product revenue
decline, network expansion costs and higher employee development and
training costs.
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. In the first nine months of the fiscal year,
the company opened 150 centers and plans for a total of approximately
200 new locations by the end of FY07. In addition, FedEx Kinko's
launched Print Online in October and is excited about the future
prospects of this new Web-based, print-on-demand application.
Tax Rate
The company's effective tax rate was reduced to 33.2% for the
third quarter and to 36.7% year to date. The rate reduction was
primarily attributable to the conclusion of various state and federal
audits and appeals. The company's fourth quarter effective tax rate is
expected to be approximately 39% due to tax charges we expect to incur
as a result of a reorganization in
acquisition in
is expected to be approximately 37.5%.
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 $35 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.
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 acquired 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.
