FedEx posts solid Q4, full-year results
Company breaks $40 billion revenue barrier for first time.
FedEx Corp. Tuesday disclosed its results for the fourth quarter of its 2012 fiscal year—a period that may be most notable for finally marking a solid turnaround for the company's long-struggling less-than-truckload (LTL) unit, FedEx Freight.
In the quarter, which ended May 31, the Memphis-based giant posted net income of $550 million on revenue of $11 billion. The quarter's results included an $84 million after-tax charge for permanently retiring 24 older Airbus and Boeing Co. freighters and 43 related engines from its domestic air express fleet.
Excluding the charge, FedEx's earnings per share for the quarter came in at $1.99, compared with $1.75 a share in the year-earlier period.
The retired aircraft have been parked and out of revenue service for a while. The retirements are part of the company's overall strategy to align air capacity with current and future volume trends. The domestic air market has been stagnating for years, as U.S. distribution has become much more regionalized and far more dependent on lower-cost ground transportation.
Alan B. Graf Jr., FedEx's CFO, said he expects customers to continue to "downshift" into less-time-sensitive, so-called deferred products well into 2013, a trend that signals continued softness in demand for premium-priced air services that offer faster deliveries.
For its 2012 fiscal year, FedEx posted revenue of $42.7 billion, cracking the $40 billion annual revenue barrier for the first time in its 41-year history. It reported operating income of $3.19 billion for the full year after accounting for the charge for retiring the planes. It reported fiscal 2011 operating income of $2.38 billion.
FedEx Ground, the company's ground parcel unit and its star player, continued its stellar performance in the quarter with record highs in operating income and in operating margin, the latter calculated by dividing revenue by operating income. But the real story may have been FedEx Freight, which has struggled in recent years and in January 2011 implemented a major network realignment that segmented deliveries based on "priority" service and less-expensive but slower "economy" service.
In the quarter, FedEx Freight posted revenue of $1.4 billion, a 7-percent increase from the same period a year ago. The big gains came in operating income, which jumped 93 percent to $81 million. Operating margins rose to 5.8 percent from 3.2 percent in the prior-year period.
In a statement accompanying the results, FedEx said the unit's income and margin gains came from "higher yield(s), volume growth, and continued improvements in operating efficiencies." Average daily LTL shipments increased 4 percent from year-earlier levels due to modest economic improvements and greater marketplace demand for its services, the company said.
The unit's yield, measured in terms of revenue per pound, increased by 4 percent year over year due to the impact of fuel surcharges and firmer pricing, the company said.
MORE CHANGES TO COME
FedEx recently announced a 6.9-percent rate increase on shipments not moving under a contract, effective July 9. On that date, it will also disclose unspecified "adjustments" to its LTL network.
The bigger change comes in the fall when FedEx announces what it has called a "significant" revamp of its U.S. air express operations. On Tuesday's analyst call, company executives refused to even give a hint of the changes to come.
FedEx, which is considered a proxy of world economic activity, projects U.S. gross domestic product (GDP) growth of 2.2 percent during its 2013 fiscal year. It projects global growth of 2.6 percent during that time.
The company bases its economic and company projections on oil prices' essentially remaining at current levels. As of mid-day June 19, a barrel of West Texas Intermediate crude oil was priced at about $84, down sharply from its 52-week high of $110 a barrel.
Investors seemed to like what they read and heard from the company. At mid-day, FedEx stock was trading at $91.32 a share, up $2.81 a share.More articles by Mark B. Solomon
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