Package delivery company FedEx Corp. (FDX) Thursday reported a decline in profit for the second quarter, reflecting mainly costs related to the combination of FedEx Freight and FedEx National LTL operations, including severance costs. Revenues and adjusted earnings for the quarter grew from last year, but came in below market consensus. The company, however, lifted its adjusted earnings guidance for fiscal 2011. For the second quarter, the Memphis, Tennessee-based company's net income declined to $283 million or $0.89 per share from $345 million or $1.10 per share in the previous year.
Reported results for the current quarter include costs related to the combination of FedEx Freight and FedEx National LTL operations and a reserve associated with a legal matter at FedEx Express, which together negatively impacted earnings by a net $0.27 per share. Excluding charges, second-quarter earnings were $1.16 per share compared with $1.10 per share a year ago. On average, 21 analysts polled by Thomson Reuters expected earnings per share of $1.31 for the quarter. Analysts' estimate typically excludes one-time items.
Revenues for the quarter grew 12% to $9.63 billion from $8.60 billion in the same quarter last year. Sixteen analysts estimated revenues of $9.70 billion for the quarter.
"Solid demand for our transportation solutions, outstanding customer service from FedEx team members and a healthier global economy helped drive second-quarter revenue higher," said Chairman, President and Chief Executive Frederick Smith. FedEx Express segment reported revenues of $5.99 billion, up 13% from last year. Operating income was $264 million, down 23% from a year ago, negatively impacted by a $66 million reserve associated with an adverse jury decision in the ATA Airlines lawsuit. FedEx Ground segment revenues increased 13% to $2.08 billion from last year. Operating income was $296 million, up 24% from the preceding year and operating margin improved to 14.3% from 13% in the previous year, mainly reflecting higher package yield and volume. FedEx Freight revenue grew 14% to $1.22 billion. The segment reported an operating loss of $91 million, wider than $12 million a year ago, mainly due to $86 million of costs associated with combination of FedEx Freight and FedEx National LTL operations, which will become effective January 30, 2011. The company's operating income for the quarter was $469 million, down 18% from $571 million last year and operating margin contracted to 4.9% from 6.6% in the previous year.
Alan Graf, Jr., executive vice president and chief financial officer of the company said in statement, "Our operating performance in the quarter was impacted by strong compensation and benefits headwinds as we reinstated programs curtailed during the recession."
Looking ahead to the third quarter, FedEx projects adjusted earnings in the range of $0.95 to $1.15 per share. Twenty analysts anticipate third-quarter earnings per share of $1.10. Including costs from the FedEx Freight combination and the legal reserve, earnings are expected to be $0.78 to $1.04 per share for the third quarter.
For fiscal 2011, the company projects adjusted earnings of $5.00 to $5.30 per share, up from its previous estimate of $4.80 to $5.25 per share. Twenty-six analysts project full-year earnings per share of $5.21. This guidance excludes any FedEx Freight combination costs and the second quarter legal reserve, and also assumes stable fuel prices and continued moderate growth in the global economy. Including FedEx Freight combination costs and legal reserve, earnings are expected to be $4.59 to $4.95 per share for fiscal 2011.
Separately, the company said it has agreed to acquire MultiPack, a Mexican domestic express package delivery company. The transaction is anticipated to close in the second calendar quarter of 2011.The acquisition is expected to allow its FedEx Express business unit to enhance its capabilities in the Mexican domestic market with a broader portfolio of transportation and logistics options under the trusted FedEx brand.
In addition, the company said it expects improvement in margins in the second half of fiscal 2011 and in fiscal 2012, as it anticipates certain cost headwinds to subside next fiscal year.
In the pre-market activity, FDX shares are trading down by 0.95% at $91.51.
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