Cost cutting measures prove successful as FedEx earnings increase 7%

Article by Cathy Morrow Roberson from Transport Intelligence - Published on September 19th 2013

Despite CEO Fred Smith’s description of “challenging global economic conditions”, FedEx reported a 2.0% increase in total revenue of $11.0bn for its first quarter ending August 31. Operating income increased 7.0% to $795m which resulted in operating margin increasing to 7.2% from 6.9% last year.

FedEx Express revenue dipped 0.3% to $6.6bn due to lower fuel surcharges and one less operating day during the quarter. However, as a result of mostly cost cutting measures, operating income jumped 14% to $236m. A shift towards the lower cost service, International Economy, continued as revenue increased 9% and volumes increased 15%.  Meanwhile, International Priority noted no change in volumes but a 5% decline in revenue for the quarter. Because of the shift towards International Economy, FedEx has made adjustments in its cost structure and network and is actively promoting this service. In regards to its freight forwarding group, FedEx Trade Networks, volumes were higher while yields were a bit weaker. This group has proven successful in moving lower-yielding international economy within its network (mostly via ocean) thus allowing FedEx Express to focus on higher-yielding commodities.


As the Express group continues to undergo realignments, it announced it would increase rates by an average of 3.9% for US domestic, export and import effective January 6, 2014. It is is also evaluating further cost reduction actions to ensure that it achieves its $1.6bn profit improvement goal by end of fiscal year 2016.


FedEx Ground had a strong quarter with revenue increasing 11.0% to $273bn. Operating income increased 5% to $468m. Average daily volume grew 11% and was attributed to FedEx Home Delivery and commercial business services. FedEx SmartPost also noted strong average daily volume, up 26% but net revenue per package declined 5.0% because of increases in postage rates and lower fuel surcharges. Ecommerce remained the primary driver of volume increases.


Finally, FedEx Freight reported revenue increased 2.0% for the quarter to $1.4bn. Operating income increased 1.0% to 91m. Higher weight per shipment, LTL yields, and average daily LTL shipments improved income at Freight. FedEx Freight continued to optimize the line haul network by increased utilization of rail over the quarter. Now it’s 17% of total line haul miles.


Overall, fiscal year 2014 has started positive for FedEx.  The company should continue to see improvements as it begins to benefit from its network adjustments and improving conditions in China and Europe.


FedEx reaffirmed its fiscal year 2014 earnings per share growth of 7% to 13% from the fiscal year 2013 adjusted results. "We remain confident in our full year earnings outlook despite tepid global economic growth," said Alan B. Graf, Jr., executive vice president and chief financial officer for FedEx.
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