FedEx Corporation today reported strong growth in revenue and profits for the third quarterending February 28, 2006, with rising operating margins in all transportation businesses. The
retail chain, FedEx Kinko’s, however, saw a sharp drop in profits.The company had Q3 net earnings of $1.38 per diluted share compared to $1.03 per diluted share ayear ago, an increase of 34%. Group revenue rose 9% to $8.00 billion, operating income improved 29%to $713 million, and the operating margin rose to 8.9%, up from last year’s 7.5%. FedEx net incomegrew 35% to $428 million.
“FedEx continues to deliver strong results by providing outstanding customer service around theworld and by crisply executing our strategy of balancing volume and revenue growth with costcontainment to improve our margins,” said Frederick W. Smith, chairman, president and chiefexecutive officer of FedEx Corp. “With our broad portfolio of services, FedEx is uniquelypositioned to take advantage of continued growth in the global economy.”
Total combined average daily package volume at FedEx Ground and FedEx Express grew 4% year overyear for the quarter, led by improved ground and international express package growth. Yieldmanagement remains a top priority across all transportation services. During the quarter, continuedyield management actions in FedEx Express U.S. deferred services boosted yields while resulting inlower U.S. deferred express volume.
“Earnings for our third quarter were better than forecasted due to a stronger than expectedholiday peak season for FedEx Ground, improved productivity in our transportation segments, lowerthan expected fuel costs, deferral of advertising and promotion costs to the fourth quarter and alower effective tax rate,” said Alan B. Graf, Jr., executive vice president and chief financialofficer.
In its Q4 outlook, FedEx said it expects fourth quarter earnings to be $1.65 to $1.80 perdiluted share. The company’s earnings guidance for the full year is now $5.66 to $5.81 per dilutedshare compared to previous guidance of $5.45 to $5.70 per diluted share. “Our earnings guidance forthe fourth quarter, which assumes continued economic growth, reflects a more normal expense trend,”Graf commented.
FedEx Express increased revenue by 9% to $5.34 billion in the third quarter, improved itsoperating income by 31% to $446 million, and achieved an operating margin of 8.4%, up from 6.9% theprevious year: The strong rise in profits was driven by solid growth in FedEx InternationalPriority (IP) and U.S. Overnight revenue, continuing yield management actions and improvedproductivity. FedEx IP revenue grew 12% for the quarter. IP average daily package volume grew 10%,due to strong growth in Asia and Europe and continuing growth in U.S. export. IP revenue perpackage grew 2% due to higher fuel surcharges and improved regional mix, partially offset bycurrency exchange rate impacts. U.S. domestic revenue per package increased 8%, while U.S. domesticvolume was down 3% resulting from yield management actions in lower-yielding U.S. deferredservices. The increase in U.S. domestic revenue per package was mainly driven by higher fuelsurcharges, the January 2006 price increases and yield management actions.
FedEx Ground, the domestic US small parcels business, increased Q3 revenue by 14% to $1.36billion, improved its operating income by 26% to $187 million, resulting in an operating margin of13.7%, up from 12.4% the previous year. FedEx Ground average daily package volume grew 11% yearover year in the third quarter. Yield improved 5% primarily due to the January 2006 general rateincrease, increased fuel surcharges and higher extra services revenue. The operating marginimproved due to revenue growth, higher productivity and effective cost controls, offset in part byinvestments in new technology and the company’s capacity expansion program.
FedEx Freight, the US domestic trucking business, increased Q3 revenue by 14% to $848 million,raised its operating income by 35% to $73 million, and recorded an operating margin of 8.6%, upfrom 7.2% the previous year. Less-than-truckload (LTL) daily shipments increased 7% year over yeardue to greater demand for FedEx Freight’s regional and interregional services.
FedEx Kinko’s, the office and shipping services retail chain, increased its Q3 revenue slightlyto $501 million but its operating income dropped 36% to just $7 million. This was an operatingmargin of 1.4%. FedEx said that the business’s profits were hit by declining copy revenues andhigher technology and product costs. The trend to higher package revenues and lower copy productrevenues is expected to continue in the fourth quarter, as are increased costs to enhance servicelevels and implement new technologies.
