FedEx today unveiled a higher than expected surge in Q1, 2014/15 profits due to strong volumegrowth and better yields along with plans to increase express, ground and freight rates next
January.The company announced earnings of $2.10 per diluted share for the first quarter ended August 31,up 37% from last year’s $1.53 per share. This was above analysts’ expectations and sent the FedExshare price, which has already risen significantly in recent weeks, up by 3.7% to over $160 inearly trading.
FedEx’s consolidated Q1 revenues grew by 6% to $11.7 billion while operating profits increasedby 24% to $987 million, improving the profit margin to 8.5% from 7.2% in the first quarter of lastyear. Net profit rose at the same pace by 24% to $606 million.
Operating profits increased primarily due to higher volumes and increased yields at all threetransportation segments, FedEx said. The Q1 results also included benefits from lower pensionexpense and the company’s profit improvement programmes, which were partially offset by higheraircraft maintenance expenses.
“FedEx Corp. is off to an outstanding start in fiscal 2015, thanks to very strong performance atFedEx Ground, solid volume and revenue increases at FedEx Freight and healthy growth in US domesticvolume at FedEx Express,” stated Fred Smith, chairman, president and chief executive officer.
FedEx Express grew solidly and improved profits significantly in the June – August quarter. Itsrevenues increased by 4% to $6.86 billion while operating profits soared 35% to $369 million. Theoperating margin rose to 5.4%, up from 4.1% the previous year.
Express revenue growth was driven by higher US domestic package volume and international exportpackage yields partially offset by lower freight revenue, FedEx said. Operating income and marginimproved due to overall revenue growth and benefits from profit improvement programmes which morethan offset higher aircraft maintenance expense and lower freight revenues.
In the USA, domestic package revenues increased by 5.9% to $2.9 billion. Volumes grew by 5%, as8% growth in overnight and deferred box volume was partially offset by lower envelope volume. TheUS domestic yield increased 1% from higher fuel surcharges, changes in service mix and increasedrates.
International export revenues increased by 4.4% to $2.2 billion while revenue per packageincreased 3% due to fuel surcharges, higher rates and weight per package. FedEx InternationalPriority revenues were up by 3.4% to $1.63 billion while volume grew 1%. FedEx InternationalEconomy revenues grew by 7.3% to $571 million while volume increased 3%.
International Domestic revenues, covering the FedEx Express domestic businesses outside the USA,grew by 7.5% to $371 million while volumes were 3.4% higher.
FedEx Ground continued its highly profitable growth with revenues up 8% to $2.96 billion andoperating profits 13% higher at $545 million. The operating margin rose to 18.4% from 17.7% theprevious year. Profit growth was driven by higher volumes and yields, partially offset by increasednetwork expansion costs. The US ground delivery operator’s average daily volume grew 6% in thefirst quarter, primarily driven by growth in e-commerce, while revenue per package increased 3% dueto increased rates and higher residential and fuel surcharges.
However, FedEx SmartPost, which uses USPS for final mile delivery, suffered a 10% drop inaverage daily volume due to the reduction in volume from a major customer. But SmartPost revenueper package increased 10% due to rate increases and improved customer mix, partially offset byhigher postage rates.
FedEx Freight, the US trucking business, increased revenues by 13% to $1.6 billion in the firstquarter and its operating profit soared by 70% to $168 million. Its operating margin rose to 10.4%,up from 7.0% the previous year. Operating results improved due to increased LTL revenue pershipment, higher average daily LTL shipments and solid cost management, the company said.
Less-than-truckload (LTL) average daily shipments increased 11%, including a 13% increase indemand for Priority service. LTL revenue per shipment increased 3% due to higher weight pershipment, increased fuel surcharge revenue and higher rates.
Meanwhile, all three transportation units will increase shipping rates effective January 5,2015. FedEx Express will increase shipping rates by an average of 4.9% for US domestic, US exportand US import services.
FedEx Ground and FedEx Home Delivery will increase shipping rates by an average of 4.9%. Inaddition, as announced in May, FedEx Ground will also begin applying dimensional weight pricing toall shipments. FedEx Freight will also increase shipping rates by an average of 4.9% for shipmentswithin the US, to and from Canada and Mexico, and within those two countries.
Looking ahead, FedEx reaffirmed its fiscal 2015 earnings forecast of $8.50 to $9.00 per dilutedshare. This outlook assumes no net year-over-year fuel impact and continued moderate economicgrowth. CFO Alan Graf said: “Our profit improvement programmes are progressing as planned and wecontinue to expect strong earnings growth this year.”
