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VOL. 126 | NO. 245 | Friday, December 16, 2011

FedEx Earnings Up 76 Pct. to $497M

By Bill Dries

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FedEx Corp.’s earnings rose significantly during the quarter ended Nov. 30, spurred by a jump in e-commerce during the Thanksgiving weekend, the company has announced.

The Memphis-based company also announced a delay in the rollout of new domestic jets as it signed an order for other new jets as well as international changes to meet “weakness” in Asia.

FedEx reported net income of $497 million, an uptick of 76 percent from the year-ago period.

In its fiscal second-quarter earnings conference call with analysts Thursday, FedEx executives also reported revenue of $10.59 billion, a 10 percent increase from a year ago.

Net income translated to earnings of $1.57 per diluted share for the quarter. That compares to 89 cents per share for fiscal Q2 2010.

“We have seen an increase in e-commerce sales as a percent of total retail sales,” said Mike Glenn, FedEx executive vice president of market development and communications. “There is certainly an increasing trend for more online sales although as a percentage of total sales it is still relatively small.”

FedEx founder and CEO Fred Smith attributed the overall fiscal Q2 improvement to increased demand for FedEx Home Delivery and FedEx Smart Post. The company’s momentum continued after the quarter ended. Monday, Dec. 12, was its busiest day ever – a volume of 17 million shipments, almost double the average daily volume.

Smith and other FedEx executives said they anticipate “moderate” economic growth, with consumer confidence still low but improving.

For the 2012 calendar year, FedEx expects U.S. gross domestic product to grow 2.2 percent with industrial production growing 3.9 percent and consumption 2.2 percent.

Worldwide, the company projects 5.8 percent growing in emerging countries, a growth forecast that speaks to Smith’s fervent belief that the emergence of countries like China into the global economy is a force to at least match the economic downturn since 2008.

Meanwhile, the FedEx Express division announced two significant changes to its fleet – a delay in delivery of 11 Boeing 777F aircraft until fiscal 2013-2018 and a new order with Boeing for 27 new 767-300F aircraft scheduled to arrive in fiscal 2014-2018. Those planes are to be used in domestic markets.

The combination allows FedEx to cut capital costs and apply some of it to the new 767s. It also means FedEx Express will keep MD-11s in international service longer.

The result is also a reaction to volumes in Asia being down and FedEx adjusting its planned capacity accordingly in the second half of 2012.

“We have to manage to what the economy around the world is doing,” said FedEx Chief Financial Officer Alan Graf. “This has slowed us a bit in terms of Express. We are resizing right now.”

FedEx Express was “heavily impacted by weakness in Asia,” Graf added.

Smith was quick to emphasize FedEx retains its ability to grow its capacity internationally and believes that growth will continue.

But he added that aggregate growth in air freight at twice the rate of the gross domestic product has changed in the last two to three years.

“The marketplace has devolved so there are a lot more small shipments going door to door. That’s why the long-range capability of the 777s are so important,” Smith said in response to a question from an analyst. “It seems to be much more episodial. We think that’s because such a higher percentage of the business is composed of electronics. … They are now built around product launches for new devices and so forth.”

Whether or not the cycle continues, Smith said the size of the FedEx fleet and its ability to offer alternatives to air delivery allow it to accommodate whatever comes internationally.

“People are using more ocean with better visibility for the commodity-type moves and it’s just really a trade-off between carrying costs and obsolescence,” Smith added. “We think we can take market share within that overall freight market.”

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