FedEx will expand services in China, sees “tremendous opportunities” in Europe and predicts apick-up in the US economy within a few months, senior executives said today at the announcement of
the company’s 2006/07 financial results.“We are going into China aggressively. Lots of our customers want this service,” FedExExpress chief Dave Bronczek told analysts during a conference call. The US integrator recentlylaunched domestic express services in China with next business day delivery to 19 cities andday-definite coverage of 200 cities from its new hub at Hangzhou airport in eastern China.
FedEx will expand the next-day service to 28 cities in the near future, CFO Alan Graf said.FedEx’s domestic China business would remain in the red this fiscal year, but could move intoprofit in the 2009 fiscal year, he added.
CEO Fred Smith told analysts that FedEx sees “tremendous opportunities” in Europe followingits recent acquisitions in the UK and Hungary but did not make any further comments on growth plansfor the region.
On US trends, Graf said that FedEx expected the US economy to improve in late summer or earlyautumn. The company’s Ground business should again grow strongly in the 2008 fiscal year butExpress would be more “restrained”, he predicted.
Bronczek said that FedEx Express would continue in the next quarter with its recent costcontrols that had already improved productivity but did not provide further details. FedEx expectsUS domestic express volumes to be fairly stagnant in the coming financial year but is hopeful ofincreasing revenues.
Announcing financial results for the fourth quarter ending May 31, FedEx said revenue rose 8%to $9.15 billion. Its operating income increased 9% to $1.01 billion, and the operating margin of11.1% was up slightly from 10.9% the previous year. Net income rose 7% to $610 million.
Total combined average daily package volume at FedEx Express and FedEx Ground grewapproximately 4% year over year for the quarter, led by continued growth in ground andinternational express shipments, the company said. Shipment volumes and revenues at FedEx Express,FedEx Ground and FedEx Freight were lower than anticipated in the fourth quarter due to the softereconomy.
FedEx Express increased Q4 revenue by 4%, improved its operating income by 6% and raised itsoperating margin to 10.2% from 10.0% the previous year. International Priority (IP) revenue grew 7%even though average daily volumes grew only 3%, reflecting lower volume growth from Europe andLatin America.
FedEx Ground, the US domestic small parcel division, increased Q4 revenue by 12% on volumegrowth of 8%, increased its operating income by 30% and improved its operating margin to 17.0%, upfrom 14.6% the previous year. The retail network FedEx Kinko’s saw Q4 revenues drop 2% but improvedits operating income by 28% thanks to higher package acceptance revenues. Revenues included $800million worth of Express and Ground package revenues, officials noted.
For the full June 2006 – May 2007 fiscal year, FedEx reported revenue of $35.2 billion, up9%. Operating income grew 9% to $3.28 billion, resulting in an unchanged operating margin of 9.3%.Net income improved by 12% to $2.02 billion. Full-year revenue grew due to strong FedEx Groundvolume growth, as well as continued FedEx Express International Priority revenue growth, thecompany said. Revenue growth also reflected the acquisition of Watkins Motor Lines in September2006.
“FedEx delivered solid financial results in fiscal 2007 even though we were restrained by aslowing U.S. economy,” CEO Fred Smith said in a statement. “The weakened industrial sector iscurrently limiting demand for transportation services, but we expect the U.S. economy to begin toshow modest year-over-year improvement
in the late summer to early fall timeframe. We remain optimistic about prospects for globaleconomic growth, and will continue to invest in projects critical to achieving strong long-termfinancial performance.”
In its outlook, FedEx said earnings growth is expected to be below the company’s long-term10% to 15% earnings growth target due to continued soft economic growth and to planned investmentsto expand the company’s networks and broaden its service offerings.
