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VOL. 127 | NO. 182 | Tuesday, September 18, 2012

FedEx Net Income Drops on Shift From Express

By Bill Dries

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Memphis-based FedEx Corp. reported Tuesday, Sept. 18, its net income for the first quarter ended Aug. 31 was down $5 million or about 1 percent.

Company executives coupled the anticipated bad news with an announcement of a 2013 rate increase at FedEx Express. And they told analysts on an earnings call from Memphis that they will unveil in much greater detail at the company’s annual investors meetings next month the adjustments they are making to the company.

The changes already announced include a voluntary buyout of some employees.

FedEx founder and CEO Fred Smith said the changes to be announced at the Oct. 8 and Oct. 9 gathering are likely to be a shift in capacity among the FedEx divisions. That change will probably reflect what the company has seen recently as customers move to deferred delivery services and in particular delivery by water instead of by air.

The net income figures for the quarter were $459 million compared to $464 million in 2011. FedEx reported earnings of $1.45 per diluted share which compares to $1.46 per share last year. Two weeks ago, the company dropped its earnings per share estimate to $1.43 per diluted share.

The company’s revenues of $10.79 billion were up three percent from $10.52 billion a year ago. Its operating income of $742 million was up one percent from $737 million last year.

“The slowdown in the global economy and trade constrained revenue growth at FedEx Express,” Smith said of the numbers for the oldest division of FedEx. FedEx Express revenues were up one percent from a year ago at $6.63 billion. But its operating income of $207 million was a drop of 28 percent from a year ago.

Shipping rates at FedEx Express will increase by a net average of 3.9 percent for U.S. domestic, U.S. export and U.S. import services effective Jan. 7, 2013.

Smith talked a lot during the earnings call about the impact of macro economic conditions on Express in particular. He also talked as he has in other recent earnings calls, about a consumer shift from priority express services to less time sensitive services also offered by FedEx that he and other FedEx leaders believe reflects economic uncertainty.

And he bristled at the idea that the details to come in October will be a “restructuring” of Express.

“The management of FedEx has never used the term restructuring,” he said. “That’s something you have mentioned and the media has mentioned. We intend to take a significant amount of cost out of the FedEx express system. We’re not going to layoff people and we’re not going to take draconian steps. All of the steps are well thought

out.”

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