Weak LTL results mar otherwise solid quarter for FedEx

Package delivery giant shows gains in every segment but freight.

By Mark B. Solomon

FedEx Corp. Chairman Frederick W. Smith must give thanks each night that his company doesn't depend on the less-than-truckload (LTL) marketplace for its daily bread.

The latest quarterly earnings report from Smith's company showed strong performance for the fiscal third quarter, paced by solid results in its domestic and international air operations. Revenue rose 7 percent year over year to $8.7 billion, while operating and net income soared by 129 percent and 146 percent, respectively, driven by improving demand and what the company termed "strict cost controls."

The Memphis-based company was also bullish on its fiscal fourth-quarter outlook, though it cautioned that a decision to reinstate various employee compensation programs will dampen earnings growth in the quarter and into the new fiscal year.

FedEx's international air-express segment was the quarter's standout. Led by Asian export demand, daily volumes rose 18 percent year over year, while revenues jumped 49 percent. Air package volumes in the domestic United States, long a flat market for air services, rose only 1 percent, while revenues fell slightly, FedEx said. The company's domestic ground parcel business posted revenue gains of 7 percent, volume increases of 5 percent fueled by growing business-to-business demand, and a 32-percent gain in operating income.

The Achilles heel in the quarter was the company's LTL unit, FedEx Freight. While revenue and shipments grew 14 percent and 26 percent, respectively, the unit reported an operating loss of $107 million, a far greater loss than analysts had forecast. LTL yields declined by 8 percent, as the unit, along with its LTL rivals, suffered from the effects of weak pricing and aggressive carrier discounting.

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