News | March 20, 2009

FedEx Profits Decrease, Layoffs Increase

Additional Cost-Reduction Actions Announced

FedEx Corp. (NYSE: FDX) recently reported earnings of $0.31 per diluted share for the third quarter ended February 28, compared to $1.26 per diluted share a year ago.

"Our financial performance was sharply lower during the quarter due to the global recession," said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. "While we are gaining market share in all of our transportation segments, the downturn in our industry and the severity and expected duration of the recession require that we take additional actions."

Cost-Reduction Actions
In light of the continuing deterioration in the global economy, FedEx will implement additional cost-reduction initiatives, both in the U.S. and internationally. These measures include the following:

  • Network capacity reductions at FedEx Express and FedEx Freight
  • Further reduction of personnel and work hours
  • Expansion of previously announced pay actions to include non-U.S. employees, where permitted
  • Streamlining of information technology systems and other internal processes
  • Additional reductions in other spending categories
  • Increased economies in the acquisition of goods and services

These cost-reduction actions are expected to result in fourth quarter charges of approximately $100 million, excluding any potential asset impairment charges. For fiscal 2010, these actions are targeted to reduce expenses by approximately $1.0 billion.

"Our goal when we implemented compensation reductions in January for U.S. salaried personnel was to both protect our business and minimize the loss of jobs," said Smith. "With industrial production and global trade trends worsening since last quarter, we are applying these additional measures to continue to secure as many of our jobs as possible during this downturn. We remain focused on providing outstanding service, and will ensure that our actions do not impede our industry-leading customer experience."

Outlook
FedEx expects earnings to be $0.45 to $0.70 per diluted share in the fourth quarter, excluding any one-time charges. Earnings in last year's fourth quarter were $1.45 per diluted share, excluding a charge of $891 million ($696 million, net of tax, or $2.22 per diluted share) related predominately to non-cash asset impairment charges associated with the decision to minimize the use of the Kinko's trade name and a reduction in the value of the goodwill resulting from the Kinko's acquisition. This outlook assumes continued weak global macroeconomic conditions and stable fuel prices.

Third Quarter Results
FedEx Corp. reported the following consolidated results for the third quarter:

  • Revenue of $8.14 billion, down 14% from $9.44 billion the previous year
  • Operating income of $182 million, down 72% from $641 million a year ago
  • Operating margin of 2.2%, down from 6.8% the previous year
  • Net income of $97 million, down 75% from last year's $393 million

Operating income and margin declined due to revenue decreases, despite a 12% decline in expenses driven by lower fuel prices, significant volumerelated reductions in flight hours, labor hours and fuel consumption, and aggressive actions to reduce spending.

FedEx Express Segment
For the third quarter, the FedEx Express segment reported:

  • Revenue of $5.05 billion, down 18% from last year's $6.13 billion
  • Operating income of $45 million, down 89% from $425 million a year ago
  • Operating margin of 0.9%, down from 6.9% the previous year

U.S. domestic package revenue declined 15%, driven by a 12% drop in revenue per package due to lower fuel surcharges, weight per package and rate per pound. U.S. domestic package volume declined 3%, despite the benefit of DHL exiting the U.S. domestic package market. FedEx International Priority® (IP) package volume fell 13%, with declines in every international region. IP revenue per package dropped 8% due to lower fuel surcharges and unfavorable exchange rates.

Operating income and margin declined due to revenue decreases, despite a 12% decline in expenses driven by lower fuel prices, significant volumerelated reductions in flight hours, labor hours and fuel consumption, and aggressive actions to reduce spending.

In February, FedEx Express began operations at its new Asia-Pacific hub located at Baiyun International Airport in Guangzhou, China. The strategically located hub is the company's largest outside of the United States and positions FedEx to better serve.

FedEx Ground Segment
For the third quarter, the FedEx Ground segment reported:

  • Revenue of $1.79 billion, up 4% from last year's $1.72 billion
  • Operating income of $196 million, up 15% from $170 million a year ago
  • Operating margin of 10.9%, up from 9.9% the previous year

FedEx Ground average daily package volume grew 2% year over year, primarily due to continued growth in the FedEx Home Delivery service. Yield improved 2% primarily due to increased extra services and higher base rates. FedEx SmartPost revenue increased 14%, while average daily volume grew 44% largely due to market share gains, including gains from DHL's exit from the U.S. domestic package market.

Operating income and margin increased due to lower fuel prices, higher revenue and improved performance at FedEx SmartPost.

FedEx Freight Segment
For the third quarter, the FedEx Freight segment reported:

  • Revenue of $914 million, down 21% from last year's $1.16 billion
  • Operating loss of $59 million, down from operating income of $46 million a year ago
  • Operating margin of (6.5%), down from 4.0% the previous year

Less-than-truckload (LTL) average daily shipments decreased 13% year over year, as market share gains were more than offset by the worst LTL environment in decades. LTL yield declined 7%, due to lower fuel surcharges and the continuing effects of a competitive pricing environment resulting from excess capacity in the LTL industry.

The operating loss reflects the extraordinary decline in demand for freight services, the continued competitive pricing environment, costs related to the consolidation of our freight regional offices and severance charges from personnel reductions. These negative factors were partially offset by lower variable incentive compensation and continued stringent cost-containment initiatives, including the personnel and facility reductions.

FedEx Services Segment
FedEx Services segment revenue, which includes the operations of FedEx Office and FedEx Global Supply Chain Services, was down 10% year over year due to declines in printing and document service revenues.

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 $38 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 290,000 team members 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 news.fedex.com.

SOURCE: FedEx