FedEx Corp. reports Fourth Quarter and Full Year Revenue and Earnings

FedEx Corporation today reported Fourth Quarter Results as well as Full year Results forthe Fiscal year 2005. For the fourth quarter FedEx reported earnings of $1.46 per diluted share for

“Our strong performance is a result of an effective strategy of cross-selling the full portfolioof FedEx services and delivering outstanding customer service,” said Frederick W. Smith, chairman,president and chief executive officer. “Our strategy is working well and we continue to innovate tobring more value to our customers worldwide. We see continued steady economic growth, both in theU.S. and in international markets, across many sectors. As we enter fiscal 2006, we are highlyoptimistic about the business and expect to achieve double-digit earnings growth.”

Fourth Quarter Results

FedEx Corp. reported the following consolidated results for the fourth quarter: 

• Revenue of $7.72 billion, up 10% from $7.04 billion the previous year
• Operating income of $740 million, up 8% from $685 million a year ago
• Operating margin of 9.6%, down from 9.7% the previous year
• Net income of $448 million, up 9% from last year’s $412 million

Operating margin during the fourth quarter was negatively impacted by costs associated with thestart-up of a new westbound around-the-world flight in support of future international growth atFedEx Express.

Total combined average daily package volume at FedEx Express and FedEx Ground grew approximately6% year over year for the quarter, due to continued growth in international express, ground andU.S. domestic express shipments.

Full Year Results

FedEx Corp. reported the following consolidated results for the full year:

• Revenue of $29.4 billion, up 19% from $24.7 billion the previous year
• Operating income of $2.47 billion, up 72% from $1.44 billion a year ago
• Operating margin of 8.4%, up from 5.8% the previous year
• Net income of $1.45 billion, up 73% from last year’s $838 million
• Earnings per share of $4.72, up 71% from $2.76 per share the previous year

Fiscal 2005 revenues included $2.07 billion from FedEx Kinko’s compared to $621 million lastyear. FedEx Kinko’s was acquired in late fiscal 2004. Fiscal 2005 includes a $48 million or $0.10per diluted share one-time charge related to the Air Transportation Safety and System StabilizationAct, partially offset by a $0.04 per diluted share tax benefit resulting from the passage of theAmerican Jobs Creation Act of 2004. Fiscal 2004 included $435 million or $0.89 per diluted share ofbusiness realignment expenses associated with voluntary early retirement and severance programs and$0.12 per diluted share from tax benefits.

Cash flow provided by operations improved for 2005 as well. Combined with available cashbalances, cash flow from operations was sufficient to fund capital expenditures for business growthand repay approximately $790 million of debt. Capital spending in fiscal 2005 was $2.2 billion. Inaddition, the quarterly dividend was increased $0.01 to $0.08 per share in the most recent dividenddeclaration.

“During fiscal 2005, we made significant progress in our financial goals of improving margins,operating cash flows and returns for our shareowners,” said Alan B. Graf, Jr., executive vicepresident and chief financial officer.

Outlook

FedEx expects earnings to be $1.10 to $1.25 per diluted share in the first quarter of fiscal2006. This earnings guidance reflects the recent escalation in jet fuel prices which are expectedto remain elevated during the quarter. In addition, the earnings guidance reflects the timing lagassociated with the Express fuel surcharge, continued startup expenses related to the westboundaround-the-world flight and minimal U.S. domestic base yield growth in the company’s packageservices due to a competitive pricing environment.

Earnings for the year are expected to be $5.20 to $5.45 per diluted share, with the companybenefiting from growth in FedEx International Priority(R), FedEx Ground and FedEx Freight shipmentsand improving operating margins. Cash flow is expected to improve.

Capital spending for fiscal 2006 is forecast to be approximately $2.5 billion. Investments inthe company’s highest margin service lines will continue as the company adds incrementalinternational routes, deploys new productivity enhancing technologies and broadens the size of itsaircraft fleet and sortation capacity to meet future growth.

FedEx Express Segment

For the fourth quarter, the FedEx Express segment reported:

• Revenue of $5.12 billion, up 9% from last year’s $4.71 billion
• Operating income of $431 million, up 6% from $407 million a year ago
• Operating margin of 8.4%, down from 8.6% the previous year

FedEx International Priority (IP) revenue grew 14% for the quarter, as IP revenue per packagegrew 7%, primarily due to fuel surcharges and favorable exchange rate differences. IP average dailypackage volume grew 6%. U.S. domestic express package revenue increased more than 5%, as yieldincreased 3% and U.S. domestic average daily package volume grew 2%. The yield increase was drivenby fuel surcharge revenue. Operating margin during the fourth quarter was negatively impacted bycosts associated with the start-up of a new westbound around-the-world flight in support of futureinternational growth at FedEx Express.

FedEx Ground Segment

For the fourth quarter, the FedEx Ground segment reported:

• Revenue of $1.23 billion, up 17% from last year’s $1.06 billion
• Operating income of $173 million, up 9% from $159 million a year ago
• Operating margin of 14.0%, down from 15.1% the previous year

FedEx Ground average daily package volume grew 9% year over year in the fourth quarter. Yieldimproved 5% primarily due to the general rate increase, improvement in extra services revenue andthe January 2005 reimplementation of a fuel surcharge. Despite improved field productivity at FedExGround, the segment operating margin declined primarily because of losses at FedEx SmartPost andhigher year-over-year expenses related to the company’s capacity expansion program.

FedEx Freight Segment

For the fourth quarter, the FedEx Freight segment reported:

• Revenue of $843 million, up 11% from last year’s $758 million
• Operating income of $95 million, up 19% from $80 million a year ago
• Operating margin of 11.3%, up from 10.6% the previous year

Less-than-truckload (LTL) yield improved 11% year over year, reflecting incremental fuelsurcharges, growth in interregional freight service and higher rates. FedEx Freight implemented a5.6% general rate increase effective May 16, 2005. Average daily LTL shipments increased 3% yearover year. Operating margin was up compared to the previous year due to LTL yield and volumegrowth.

FedEx Kinko’s Segment

For the fourth quarter, the FedEx Kinko’s segment reported:

• Revenue of $553 million, up 6% from last year’s $521 million
• Operating income of $41 million, up 5% from $39 million a year ago
• Operating margin of 7.4%, down from 7.5% the previous year

FedEx Kinko’s revenue for the quarter was driven by demand for packaging and shipping servicesand signs and banners, partially offset by a slight decline in copy product lines. Operating margincontinued to be negatively affected by integration and expansion activities, including costsassociated with center rebranding and expansion, the centralization of FedEx Kinko’s corporateoffice and the launch of packaging and shipping services at its U.S. locations. Costs associatedwith expansion and integration activities will continue in fiscal 2006.  With the conversionof 176 former FedEx World Service Center locations to FedEx Kinko’s Ship Centers during thequarter, as well as the continued opening of new domestic and international centers, the companynow has approximately 1,440 locations worldwide, up from approximately 1,200 locations a yearago.

Tax Rate

The company’s effective tax rate was approximately 37% for the fourth quarter and full year. Forfiscal 2006, the effective tax rate is expected to be approximately 38%.