*NEWS*FED-EX/KINKOS 1ST Q. PROFITS SURGE/2004-09-26

[Anonymous]

FedEx Profits Surge in First Quarter; Strong Revenue Growth Across International, Ground and Freight Services  

Federal Express (FedEx) Corporation Reported earnings of $1.08 per diluted share for the first quarter ended August 31, compared to $0.42 per diluted share a year ago, an increase of 157%. Excluding business realignment costs and a one-time tax benefit, last year's earnings per diluted share were $0.61.

FedEx Corp. reported the following consolidated results for the first quarter:

 

• Revenue of $6.98 billion, up 23% from $5.69 billion the previous year
• Operating income of $579 million, up from $200 million a year ago
• Operating margin of 8.3%, up from last year's 3.5%
• Net income of $330 million, up from $128 million the previous year.

"Our strong earnings performance reflects an increased demand for our broad portfolio of services, successful execution of our cross-selling strategy, and the expanding global economy," said Frederick W. Smith, chairman, president and chief executive officer. "Customers are increasingly seeing the value of using FedEx to reach new markets, grow their businesses and cut inventory carrying costs. The global economy is expanding steadily, particularly the manufacturing sector, giving our business more opportunities to grow in the future."

First quarter revenues included $490 million from FedEx Kinko's, which was acquired in late fiscal 2004. Last year's first quarter included $132 million or $0.27 per diluted share of business realignment expenses at FedEx Express associated with voluntary early retirement and severance programs. It also included a one-time benefit of $0.08 per diluted share resulting from a court ruling in favor of the company over the tax treatment of jet engine maintenance costs.

Total average daily package volume at FedEx Express and FedEx Ground grew a combined 6% year over year for the quarter, due to continued strong growth in international express shipments and higher growth in ground shipments. FedEx Freight average daily less-than-truckload (LTL) shipment volume increased 14%. Revenue per package increased at both FedEx Express and FedEx Ground, while LTL revenue per hundredweight grew at FedEx Freight.

Outlook

FedEx expects second quarter earnings to be $1.10 to $1.20 per diluted share, while earnings for the year are still expected to be $4.40 to $4.60 per diluted share. Capital spending for fiscal 2005 is forecast to be approximately $2.1 billion. Strong growth in FedEx International Priority services requires additional aircraft capacity and infrastructure for FedEx Express. Strong growth at FedEx Freight and FedEx Ground is also driving additional investments in those networks.

"The company's solid revenue growth and improved profitability trend are very encouraging," said Alan B. Graf, Jr., executive vice president and chief financial officer. "We continue to be highly focused on increasing profitability and improving returns and cash flow. The increased investment in our networks is expected to give us the necessary capacity to handle anticipated growth in the future. We expect cash flows from operating activities to exceed capital spending even with these additional capital investments."

FedEx Express Segment

For the first quarter, the FedEx Express segment reported:

• Revenue of $4.62 billion, up 12% from last year's $4.14 billion
• Operating income of $310 million, up significantly from $23 million a year ago
• Operating margin of 6.7%, up from 0.6% the previous year.

FedEx International Priority revenue continued its strong growth, increasing 25% for the quarter. IP average daily package volume grew 13%, led by strong growth in Asia, U.S. export and Europe. China exports grew 52%. IP revenue per package grew 8%, primarily due to an increase in average weight per package, fuel surcharges and favorable exchange rate differences. U.S. domestic express package revenue was higher, as U.S. domestic package yield increased 6% due to higher fuel surcharge revenue and increases in average weight per package and average rate per pound. U.S. domestic average daily package volume was down about 2%.

Operating income improved dramatically year over year, benefiting from savings from business realignment programs, revenue growth, ongoing cost control efforts and one additional operating day. Also, the first quarter of fiscal 2004 included $132 million of costs related to business realignment.

FedEx Express received tentative approval from the U.S. Department of Transportation for 12 new flight frequencies into China, allowing the company to extend its leadership position as the largest express carrier in China. The new authorities will provide FedEx with 23 weekly flights to China, more than doubling the current number of weekly flights.

FedEx Ground Segment

For the first quarter, the FedEx Ground segment reported:

• Revenue of $1.07 billion, up 17% from last year's $914 million
• Operating income of $147 million, up 27% from $116 million a year ago
• Operating margin of 13.7%, up from 12.7% the previous year.

Average daily package volume showed very strong growth, improving 16% year over year in the first quarter. Yield improved 2% primarily due to a January 2004 general rate increase and an increase in extra services revenue, partially offset by higher incentives, a lower average weight per package and the elimination of the FedEx Ground fuel surcharge.

The FedEx Ground segment operating margin was up due to improved productivity and cost controls partially offset by higher fuel costs and a small operating loss at FedEx Supply Chain Services. FedEx Ground also benefited from one additional operating day in this year's first quarter.

On September 12, FedEx acquired Parcel Direct, a division of a privately held company, for approximately $120 million in cash. Parcel Direct is a leading parcel consolidator and will broaden the FedEx portfolio by allowing the company to offer a cost effective option for delivering low-weight, less time-sensitive packages to U.S. residences through the U.S. Postal Service. The financial results of Parcel Direct will be included in the FedEx Ground segment and are not expected to materially affect earnings, returns or cash flows.

FedEx Freight Segment

For the first quarter, the FedEx Freight segment reported:

• Revenue of $807 million, up 27% from last year's $637 million
• Operating income of $103 million, up 69% from $61 million a year ago
• Operating margin of 12.8%, up from 9.6% the previous year

Average daily LTL shipments increased 14% year over year due to market-share gains and a stronger economy. LTL yield improved 7% year over year reflecting incremental fuel surcharges, growth in interregional freight service, a 5.9% general rate increase in June 2004 and favorable contract renewals. Operating margin was up significantly compared to the previous year due to higher fuel surcharges, productivity gains, one additional operating day and effective cost controls.

One year after launching its no-fee money-back guarantee, FedEx Freight continues to gain market share, particularly from small- and medium-sized businesses. The no-fee money-back guarantee aligns the LTL offering with other FedEx services, differentiating FedEx Freight from its competitors and enabling the company to offer better bundled sales solutions.

FedEx Kinko's Segment

For the first quarter, the FedEx Kinko's segment reported:

• Revenue of $490 million
• Operating income of $19 million
• Operating margin of 3.8%.

Although FedEx Kinko's revenue for the quarter experienced strong demand from commercial customer sales and signs and graphics, revenue and operating margin were lower than the fourth quarter, as expected, due to the seasonally slower summer period and incremental staffing and training costs related to the expanded service offerings. Costs associated with the integration of FedEx Kinko's will continue through fiscal 2005.

This is the first full quarter that FedEx Kinko's has made available the full range of FedEx day-definite ground and time-definite global express shipping services at U.S. FedEx Kinko's centers. FedEx Kinko's now offers FedEx Consolidated Returns service and will provide complete pack-and-ship capabilities to customers in time for the 2004 peak holiday season.

During the quarter, FedEx Kinko's launched an innovative free software tool called File, Print FedEx Kinko's that can connect Microsoft Windows desktop users to approximately 1,100 FedEx Kinko's Office and Print Centers nationwide. The software tool works over the Web to provide easy access to FedEx Kinko's services not available on most home or office printers.

* Post was edited: 2004-09-26 10:48:00

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June 23, 2013 at 4:46 AM