VOL. 127 | NO. 58 | Friday, March 23, 2012
FedEx Reports 126 Pct. Earnings Increase
By Bill Dries
Memphis-based FedEx Corp. reported net earnings for its third quarter of $521 million or $1.65 a share compared with $231 million in earnings a year ago or 73 cents a share.
The earnings comparison is a 126 percent increase that company executives said was driven by holiday package shipping that set a record for the cargo giant and strong online holiday sales.
FedEx’s third quarter covers the three months ending Feb. 29.
But FedEx founder and CEO Fred Smith also said in the Thursday, March 22, earnings call with analysts that the company doesn’t see the global economy growing as rapidly as it had once anticipated or as economists expect the gross domestic product to grow.
“The growth rates in Europe are extremely low. My personal belief is they are going to continue to be low as long as the policies being pursued in Europe are the same as have been pursued over the last 20 to 25 years,” Smith said. “I think the same is true in the United States. I’m not trying to be political. We simply don’t have policies in the U.S. and Europe that are stimulative of GDP growth beyond relatively low levels.”
FedEx executive vice president of market development Mike Glenn described the forecast as “moderate but below trend growth.”
“Improvement in the job market should lead to improvement in the housing market,” he added.
FedEx reported a 9 percent increase in revenue at $10.5 billion in its third quarter and operating income of $813 million – a 107 percent increase from last year.
FedEx Ground reported a 43 percent increase in income for the three months totaling $465 million.
Chief Financial Officer Alan Graf also said FedEx will continue to reduce flight hours as it continues a move to new and more efficient Boeing 767 aircraft to replace MD10s and deal with lower demand or customers who are using other parts of the FedEx portfolio to ship goods.
“We have been and will continue to be reducing flight hours,” Graf said. “We’ll take some planes and put them in the desert until economic conditions improve.”
Glenn added that the “underlying issue is below trend growth.” But other factors are a different way of moving goods that has blurred the line between domestic and international as supply chain networks are refined “as opposed to bringing products in bulk into the U.S. and putting it in warehouses and then shipping it out as a domestic transaction.”
“It is now being shipped from point of manufacture to point of consumption,” Glenn said. “So that is counted as an international transaction, which is why you constantly hear us referring to the network as a global network – not domestic versus international.”
Smith also said as customers use ground transportation as an alternative to air or are able to mix and match options under the FedEx umbrella, FedEx isn’t viewing that as a hit on one of the subsidiaries necessarily.
“Over the years we’ve consistently said that FedEx believes we can improve margins, cash flows and returns. We’ve done all that,” Smith said. “We don’t look at it in quite the same way as you do on these earnings calls. We look at it as FedEx Corp. … We look at it as a portfolio and not individual silos and individual businesses.”
Smith also declined specific comment on rival UPS’ planned $6.7 billion acquisition of TNT Express, a Dutch parcel company.
But he told analysts FedEx Express is “growing strongly” in the European market where TNT is a factor.
“We are confident in our plan to continue expansion primarily through organic growth,” he added.