Better revenue and cost performance at FedEx Express contributed to a strong fourth quarter –including a return to a double-digit operating margin – and a solid full fiscal year (FY) for FedEx
Corp.Alongside the improved revenue and cost performance at FedEx Express, the group highlightedhigher volumes and operational efficiencies at FedEx Freight along with increased volumes andyields at FedEx Ground. Chairman, president and CEO Fred Smith described the fourth-quarterperformance as “outstanding” and claimed that the company was “well positioned for a strong fiscal2015”, thanks to an improving economic environment and progress in all of the company’s businessunits.
Dave Bronczek, president and CEO of FedEx Express, told today’s analyst conferencethat his division was on track to achieve its profit-improvement targets for both the 2015 and 2016fiscal years, even though the methods of achieving the $1.6 billion annual profit-improvementtarget by the end of FY 2016 and 75% of this by the end of FY 2015 had required adjustment sincethe plan was created in 2012.
Overall group revenue increased by around 3.5% in the fourth quarter to US$11.8 billion, whileoperating income increased more than 7% to 1.18 billion, generating an operating margin of exactly10%. This helped drive full-year revenues up by 3% to $45.6 billion, with full-year operatingincome increasing by around 7.5% to $3.45 billion, taking the full-year operating margin to7.6%.
Fourth quarter revenue at FedEx Express increased fractionally to $7 billion from last year’sfourth-quarter figure of $6.98 billion, while operating income of $475 million was up 3% from anadjusted $460 million a year ago, generating an operating margin of 6.8%, up from an adjusted 6.6%the previous year. Including charges, last year’s operating income and margin was zero.
The slight express revenue growth was due to a 2% increase in package volumes and higher basepackage yields, partially offset by the effects of one fewer operating day, lower fuel surchargesand lower express freight revenues. US domestic average daily volume increased 3%, while USdomestic revenue per package was flat, as lower fuel surcharges offset higher weight per packageand a better service mix.
International export revenue per package grew 2%, as improved rates, higher weight per packageand a more favourable service mix more than offset lower fuel surcharges. International exportvolumes grew 2%, as FedEx International Economy grew 5% while FedEx International Priority wasflat, despite reduced lower-yielding distribution services volume.
The Express division’s operating results increased as higher base package yields and volumes,along with lower pension expenses, more than offset the significant negative net impact of fuel,lower freight revenue and one fewer operating day, the company said.
The company’s FedEx Ground business reported fourth-quarter revenue of $3.01 billion, up 8% fromlast year’s $2.78 billion, while operating income increased 5% to $586 million. The operatingmargin for the division dropped to 19.5%, from an adjusted 20.1% the previous year, althoughincluding charges, last year’s operating margin was 16.7%.
FedEx Ground’s average daily volumes grew 8% in the fourth quarter, primarily driven by growthin e-commerce. Revenue per package increased 2% due to rate increases and higher residentialsurcharges, partially offset by lower fuel surcharges. FedEx SmartPost average daily volumedecreased 8%, the result of one major customer switching its business to USPS, while net revenueper package was up 8% due to rate increases and improved customer mix, partially offset by higherpostage costs.
CFO Alan Graf said he was confident the company would replace the volumes and revenues from thatlost customer with higher-yielding traffic. The company said the division’s operating resultsbenefited from higher Ground volume and revenue per package, partially offset by higher networkexpansion costs and one fewer operating day.
Meanwhile, FedEx Freight reported a strong improvement in its performance in the fourth quarter.Revenue of $1.55 billion was up 12% from last year’s $1.39 billion, while operating income of $122million was up 51% from an adjusted $81 million a year ago. Including charges, last year’soperating income was $38 million.
The fourth-quarter operating margin for FedEx Freight increased to 7.9% from an adjusted 5.8%the previous year. Including charges, last year’s operating margin was 2.7%. The operating resultsimproved due to the positive impacts of higher average daily shipments, higher weight per shipmentand improved operational efficiencies, partially offset by one fewer operating day.
Less-than-truckload (LTL) average daily shipments grew 12%, including a 14% increase indemand for FedEx Freight’s Priority service. Weight per shipment grew 2%, driving a 1%increase in revenue per shipment.
Outlook
CFO Alan Graf said FY 2014 had been “a good year for FedEx”, adding: “We expect fiscal 2015 tobe even better. With continued modest economic improvement, our results in fiscal 2015 shouldbenefit from base performance improvement and on-going execution of our profit improvementinitiatives at FedEx Express, continued profitable growth at FedEx Ground and FedEx Freight, andour share repurchase programme.”
Graf predicted FY 2015 earnings per diluted share of $8.50 to $9.00, up from $6.75 in FY 2014,assuming no net year-over-year fuel impact and continued moderate economic growth. However, heacknowledged that the current situation in the Middle East meant fuel costs were something of a “wild card”.
Capital spending for fiscal 2015 is expected to increase to approximately $4.2 billion, whichincludes planned aircraft deliveries to support the company’s fleet modernisation programme andcontinued expansion of the FedEx Ground network.
Graf concluded: “We remain committed to improving earnings, cash flows, returns on investedcapital and returns to shareowners, with the most recent example of the latter being our announced33% increase in the quarterly dividend.”
