FedEx today announced heavy losses for the fourth quarter ending May 31 due to financial chargesand lower volumes. It also gave a modest outlook for the next two quarters but said the “worst of
the recession” may be over.In the fourth quarter, FedEx revenues dropped 20% to $7.85 billion and the group made anoperating loss of $849 million, compared to an operating loss of $163 million last year. The netloss was $876 million compared to last year’s net loss of $241 million. For the full 2008-09 year,FedEx reported a 6% revenue decline to $35.5 billion. Operating profit dropped 64% to $747 million,and net profit was down 91% at $98 million.
The Q4 results include charges of approximately $1.2 billion ($1.1 billion noncash),resulting primarily from the impairment of goodwill related to the acquisitions of Kinko’s, Inc.(now known as FedEx Office) and Watkins Motor Lines (now known as FedEx National LTL). Theseimpairment charges reflect a decline in the current fair value of these companies in light ofeconomic conditions and their recent and forecasted performance. The quarter also included costsfrom actions to align the company’s networks to better match demand by removing equipment andfacilities from service and reducing personnel.
In addition to the impairment and other charges, operating performance continues to berestrained by the global recession, which is resulting in lower shipment volumes at FedEx Expressand FedEx Freight and a very competitive pricing environment. Revenue was also negatively impactedby reduced fuel surcharges and lower shipment weight. Revenue declines were partially offset bystringent cost control efforts and share gains in the parcel market.
“FedEx operations performed well even with strong economic headwinds, thanks to decisivemanagement actions to control costs and committed team members who delivered outstanding service toour customers,” said Fred Smith, FedEx Corp. chairman, president and chief executive officer. “There are signs that the worst of the recession is behind us and we remain optimistic that we willsee quarter-over-quarter economic improvement later this calendar year,” he added.
In Q4, FedEx Express suffered a 25% drop in revenue to $4.8 billion, and made an operatingloss of $136 million, compared to an operating profit of $426 million a year ago. The operatingmargin of -2.8% was sharply down from 6.7% the previous year. Operating income and margin werenegatively impacted by charges of $260 million associated with aircraft-related charges andseverance programs. These costs are the result of permanently removing ten Airbus A310-200 and fourBoeing MD10-10 owned aircraft and certain excess aircraft engines from service, terminating certainaircraft-related leases and contracts and reducing management and staff positions.
US domestic package revenue declined 21%, driven by a 19% drop in revenue per package due tolower fuel surcharges, weight per package and rate per pound. US domestic package volume was down2%. FedEx International Priority® (IP) package revenue declined 27%. IP revenue per packagedeclined 17% primarily due to lower fuel surcharges, unfavourable exchange rates and lower packageweights, partially offset by a higher rate per pound. IP package volume fell 12%, with declines inall international regions.
The impact of declining revenue and rising fuel prices was partially offset by significantvolume-related reductions in flight hours, labour hours, fuel consumption and purchasedtransportation, and a continued focus on aggressive expense reductions throughout the company.
FedEx Ground revenue dropped 1% to $1.7 billion in Q4, and its operating profit was stable at$203 million. The operating margin improved fractionally to 11.9%. FedEx Ground average dailypackage volume was essentially flat year over year. Yield decreased 1% primarily due to lower fuelsurcharges. FedEx SmartPost revenue increased 21%, as average daily volume grew 66% largely due tomarket share gains, including gains from DHL’s exit from the US domestic package market.
FedEx Freight reported a 28% drop in revenue to $948 million and an operating loss of $106million, down from operating income of $99 million a year ago. The operating loss reflects a $90million impairment charge. FedEx Services, including FedEx Office and FedEx Global Supply ChainServices, had a revenue decline of 13%, primarily due to lower copy product revenues. Fourthquarter results for FedEx Services include an $810 million goodwill impairment charge related tothe acquisition of Kinko’s (now known as FedEx Office).
Looking ahead, CFO Alan Graf commented: “The operating environment for our first two quartersin fiscal 2010 is expected to be extremely difficult. Manufacturing activity is expected to besubstantially negative year over year through the summer and last year’s first quarter resultsbenefited from stronger economic activity, making earnings comparisons difficult. Also, the recentrun-up in fuel prices will have a significant negative impact on our first quarter’s results. Atthis time we do not have enough visibility into the economic recovery and jet fuel prices toprovide a meaningful annual earnings forecast. However, we believe that FedEx will be poised forgrowth in our fiscal second half, as our many cost-saving initiatives gain traction and the economybegins to improve.”
The capital spending forecast for fiscal 2010 is $2.6 billion, which includes significantinvestments in more fuel-efficient aircraft.
