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VOL. 128 | NO. 183 | Thursday, September 19, 2013

FedEx Posts 7 Percent Earnings Increase

By Bill Dries

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Memphis-based FedEx Corp. posted a quarterly profit 7 percent higher than a year ago for its fiscal first quarter, ended Aug. 31.

Memphis-based FedEx Corp. reported 7 percent growth in its earnings Wednesday, Sept. 18, for its second quarter.

(Daily News File/Lance Murphey)

The 7 percent profit on earnings of $489 million, or $1.53 per share, was announced in a conference call with analysts Wednesday, Sept. 18, when the company also announced it would increase FedEx Express rates in the U.S. starting in January.

While FedEx Corp. saw its profits for the quarter rise by 7 percent, FedEx Express, the company’s oldest and largest division, saw its revenues dip for the quarter.

The company attributed the revenues of $6.61 billion to lower fuel surcharge revenue. Jet fuel prices spiked toward the end of the first quarter, but there is a six-week lag time in when FedEx can levy the surcharge.

The company doesn’t release exact numbers, “but I can tell you it was significant,” said FedEx Chief Financial Officer Alan B. Graf Jr.

“It’s pretty evident that we were paying a lot higher for jet fuel and were not able to pass along the surcharge,” he added. “Over time it evens out, but it sure does cause volatility.”

Express is where FedEx is making the bulk of its changes as it follows through on its commitment to investors earlier this year to increase operating profits by $1.6 billion by the end of fiscal year 2016.

Graf said Wednesday the company remains committed to the goal “despite tepid global economic growth.”

“The market has changed. We’ve embraced that.”

–Fred Smith

Of 3,600 FedEx employees who took a voluntary buyout earlier this year as part of the goal, 45 percent had left the company as of Aug. 31. The rest will leave through the end of next June.

The 3.9 percent average increase in FedEx Express shipping rates effective Jan. 6 is the latest in a series of pricing changes. FedEx Freight’s general rates went up 4.5 percent on July 1. Later this year, the company will announce pricing changes for FedEx Ground and FedEx Smart Post.

For a second earnings call, the company also touted how it is adjusting its networks as customers change how they choose to ship packages.

That means lower yield traffic continues to move off of the aircraft that make up the Express division into other parts of the FedEx portfolio.

“In the past, we used to cap that traffic,” said Dave Bronczek, president and chief executive officer of the Express unit. “It’s been a terrific shift for us to match what is happening in the global economy.”

Fred Smith, the founder, chairman, president and CEO of FedEx, said the shift includes high-tech products moving more to FedEx Trade Networks.

“The market has changed. We’ve embraced that,” Smith said. “It’s a perfect complement to this heavier traffic that FTN carries, an awful lot of which goes on the ocean.”

That becomes important because the second half of FedEx’s fiscal year will see a lot of tech launches, including several this week.

“There is a lot more staging of inventory going on, on the international front, as opposed to using expedited from door to door,” said Mike Glenn, executive vice president of market development. “We will certainly benefit from that with those launches.”

The benefit is more of a “short burst,” he added.

“You don’t see the long tail of that, that you may have seen in the past,” Glenn said, although there is some follow-up as accessories for the new devices follow the product launch.

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