FedEx today announced strong second-quarter revenue and earnings growth figures, despite a 3%drop in its international parcels traffic, alongside an order for 27 new B767 freighters to replace
its ageing US domestic fleet of MD-10 aircraft, and a deferral of 11 B777 orders.Group revenues for the September – November 2011 quarter were up 10% to $10.59 billion (€8.1billion), while operating income rose 66% to $780 million. Operating margin reached 7.4%, up from4.9% the previous year, while net income grew 76% to $497 million.
FedEx Ground achieved higher yields and volumes, and there was also a significant improvement inprofitability at FedEx Freight. The results for the quarter also reflect the positive year-on-yearbenefit, mainly at FedEx Express, from the timing lag that exists between when fuel prices changeand when indexed fuel surcharges automatically adjust, the company said. Last year’s operatingincome and margin were also impacted by one-off charges at FedEx Express and FedEx Freight.
FedEx Corp chairman, president and CEO Fred Smith said the improved performance was largely aresult of effective yield management programmes and strong demand for FedEx Home Delivery and FedExSmartPost services. “With the healthy growth in online shopping this holiday season, demand isincreasing for these residential delivery services,” he added.
The group’s FedEx Express unit reported 10% growth in quarterly revenue to $6.58 billion, withoperating income rising 30% to $342 million, generating an operating margin of 5.2%, up from 4.4%the previous year. The company said this reflected the year-on-year benefit of the fuel surchargetiming lag, and that the prior-year results were also negatively impacted by a $66 million reserveassociated with a legal matter.
International parcel revenue per package for the company’s International Priority (IP) productgrew 11% due to higher fuel surcharges, higher rate per unit weight, and higher average weight perpackage. But its average daily IP package volume decreased 3%, driven by declines from Asia. IPfreight kilogrammes increased 4%, with revenue per kilogramme up 4% due to higher fuelsurcharges.
In total, FedEx Express’s IP package and freight kilogrammes increased by 2% and revenueincreased 8% year-over-year. US domestic revenue per package grew 12% due to higher fuel surchargesand rate per pound, while average daily package volume declined 4%.
The purchase of the 27 new 767-300F aircraft is linked to a decision by FedEx Express to delaythe delivery of 11 777F aircraft. Smith explained: “The original plan was to bring in the 777s andpush the MD-11s into the domestic fleet and retire the MD-10s. But when the B767 was selected forthe US tanker mission and Boeing decided to keep it in production, we looked at this and there wasa much higher return for us with the 767.
“Our international capacity has not changed – we will simply keep the MD-11s operating a bitlonger. The 767s are a better fit for the domestic network – that is why the returns are better.”& amp; amp; amp; amp; lt; /p>
The first three new B767s are scheduled to arrive in fiscal 2014, followed by six per year infiscal years 2015-2018. FedEx said the 767s will provide similar capacity as the MD10s, withimproved reliability, an approximate 30% increase in fuel efficiency and a minimum of a 20%reduction in unit operating costs.
Regarding the delivery of the B777 aircraft, two will be deferred from fiscal year 2013, fivefrom fiscal 2014 and one per year in fiscal 2015-2018, “to better balance air network capacity todemand” the company said. As a result of these deferrals, FedEx Express will still place intoservice four 777s in fiscal 2013 and two in fiscal 2014.
The company insisted that the B777 was still its favoured aircraft for intercontinentaloperations, confirmed by the fact it is also exercising two 777 options for aircraft to bedelivered at the end of the delivery schedule.
FedEx confirmed that it had been reducing its overall intercontinental capacity, to better matchcapacity with demand, reflecting the recent decline in overall international parcel volumes. Thesevolume declines, and capacity reductions, were mainly focused on its services from Asia, which itsaid were subject to the greatest levels of volatility.
The company said it expected international express parcel volumes to be flat in the second halfof this fiscal year, domestic express to be flat or slightly down, and that it expected to seecontinued growth in its Ground services.
The company said deliveries of e-commerce sales have been growing at mid-teen rates for the lasttwo years and continue to account for a growing share of overall retail sales – 4.6% in the thirdquarter compared with 4.3% last year, and 1% in 2000.
Mike Glenn, executive vice president of market development, said: “On Monday we handled around17 million shipments in our global network, almost double our normal daily volumes, to set a newrecord for our busiest day in the company history. As expected, this was driven by FedEx SmartPostand FedEx Ground and Home Delivery.”
