FedEx Q1 results reflect slowdown

FedEx Corp. today reported first fiscal quarter operating results that reflected what company executives said was slower-than-expected economic growth in the U.S. and global economies.

At the same time, FedEx announced that its FedEx Express air-freight unit would implement a 3.9-percent "net" rate increase for all U.S. domestic, U.S. import, and U.S. export services, effective Jan. 2. The rate increase of 5.9 percent will be partially offset by a two percentage point reduction in the company's jet fuel surcharge, leaving the net rate increase at 3.9 percent.

Rate changes for the company's ground parcel and FedEx SmartPost businesses will be announced later this year. Under the SmartPost service, FedEx tenders customer shipments to the U.S. Postal Service for so-called last-mile deliveries, generally to more remote areas where FedEx lacks the package density to justify sending its own livery. FedEx Freight, the company's less-than-truckload (LTL) business, implemented a 6.75-percent general rate increase on Sept. 6.

The Memphis-based giant projected second-quarter earnings to be between $1.40 and $1.60 per diluted share, and $6.25 to $6.75 per diluted share for its 2012 fiscal year, which began in June. The company had previously forecast full-year earnings of between $6.35 and $6.85 per diluted share in fiscal 2012.

FedEx said its outlook assumes moderate growth in the global economy and reasonably stable oil prices. FedEx said its capital spending program would remain unchanged at $4.2 billion.

FedEx posted revenue of $10.52 billion in the first quarter, up 11 percent from the previous year. Operating income increased 17 percent to $737 million, net income rose 22 percent to $464 million, while the company's operating margins grew to 7 percent from 6.6 percent.

The FedEx Express unit bore the brunt of the economic slowdown, especially as demand ebbed in the quarter for shipments out of Asia. While revenue rose 12 percent to $6.59 billion, operating income dropped 19 percent and margins declined to 4.4 percent from 6 percent, FedEx said. Domestic daily package volume fell 3 percent year over year, while daily international volumes declined 4 percent. Revenue per package rose 13 percent due to higher fuel surcharges, aggressive yield management actions, and higher weight per package, the company said.

Strong performance from the company's ground parcel and LTL units offset the weaker-than-expected results from the air operations, FedEx said.

"The U.S. and global economy grew at a slower rate than we anticipated during the quarter," said Alan B. Graf Jr., FedEx's executive vice president and chief financial officer, in a statement. "While FedEx Ground and FedEx Freight achieved improved operating results despite lower-than-expected growth, the more rapid decline in demand for FedEx Express services, particularly from Asia, outpaced our ability to reduce operating costs."