Memphis-based FedEx Corp. on Wednesday, Dec. 19, reported second quarter net income of $438 million, down 12 percent from last year’s $497 million. The company attributed the income drop to several factors, including weakness in global markets, higher fuel costs and disruptions resulting from Superstorm Sandy.
FedEx founder and CEO Fred Smith said in an earnings call from Memphis that the world’s second-largest shipping company was pleased with the improving operating results from FedEx Ground and FedEx Freight, but its FedEx Express arm suffered during the second quarter of fiscal year 2013 due to weakness in the global economy.
“Operating income for the quarter improved at FedEx Freight and FedEx Ground due to increased volumes and higher yields, while persistent weakness in the global economy and increased demand for lower-yielding international services limited profits at FedEx Express,” Smith said. “Over the last couple of years, customers have opted to trade a bit of speed for a lower price.”
As part of its ongoing fleet revitalization plan, the company also revealed it entered into an agreement this month with Boeing to purchase four incremental Boeing 767-300 freighters for delivery in 2015. The deal brings the total 767s on order to 50, with deliveries scheduled to begin in fiscal 2014.
The new planes will replace much older MD-10 airplanes, some of which have seen more than 30 years of service. The 767s are larger and more fuel-efficient than the MD-10s.
“Over the last couple of years, customers have opted to trade a bit of speed for a lower price.”
Founder and CEO, FedEx
FedEx also pushed back delivery of two 777 freighters one year from 2015 to 2016 as part of the deal.
This year FedEx is currently experiencing another record-setting holiday shipping season, driven by the continued growth of online purchases. On Dec. 17, the company set a new daily record by moving approximately 19.8 million shipments, and it also handled more than 19 million shipments on Nov. 27 (Cyber Monday) and Dec. 10.
Overall for this holiday season, FedEx expects volume in its worldwide network to increase 13 percent over last year. The number of packages it handles on its busiest day, which varies each year according to Christmas shipping deadlines, has nearly doubled since 2005.
But the record-setting holiday traffic is expected to be tempered by lackluster growth in the global economy. The company is continuing to see consumers and businesses choose slower, less expensive ways of shipping, which is hurting its core air-delivery network, FedEx Express.
Earlier this year the company set a goal of increasing its profitability by $1.7 billion a year, and most of that will come from reductions in FedEx Express. The company is offering voluntary buyouts to thousands of employees starting next February and running through 2015, and the pretax cost of the program is anticipated to range from approximately $550 million to $650 million.
For the second quarter of this year ending Nov. 30, FedEx reported earnings of $1.39 per diluted share, compared to $1.57 per share during the same quarter last year. The company estimates the impact of Superstorm Sandy on the quarter’s results was $0.11 per diluted share due to reduced shipment volumes and incremental operating costs.
The company reported revenue of $11.1 billion, up 5 percent from $10.6 billion the previous year. Operating income totaled $718 million, down 8 percent from $780 million last year. The company’s operating margin was 6.5 percent, down from 7.4 percent the previous year.