Package delivery company FedEx Corp. (FDX) reported Thursday a strong growth in first-quarter profit, in line with market projections, mainly reflecting higher demand at FedEx Express and FedEx Ground, along with increased fuel surcharges. Further, the company lifted its fiscal 2011 adjusted earnings forecast.
In addition, Memphis, Tennessee-based FedEx said it will combine its FedEx Freight and FedEx National LTL operations effective January 30, which would result in about 1,700 job cuts, and closing of about 100 facilities.
For the first quarter, FedEx's net income grew 110% to $380 million from $181 million a year ago. On a per share basis, earnings increased 107% to $1.20 from $0.58 last year.
On average, 21 analysts polled by Thomson Reuters expected the company to report earnings of $1.20 per share. Analysts' estimates typically exclude special items.
The company attributed the higher profit to "strong FedEx International Priority, or IP, growth at FedEx Express, continued growth at FedEx Ground and a benefit from the net impact of higher fuel surcharges."
In the first quarter, FedEx's revenues grew 18% to $9.46 billion from $8.01 billion in the previous year, beating Wall Street analysts' consensus estimate of $9.41 billion.
FedEx Express segment reported a 20% year-over-year growth in revenue to $5.91 billion. FedEx Ground segment's revenues increased 13% to $1.96 billion, and FedEx Freight segment's revenue grew 28% from last year to $1.26 billion. Meanwhile, FedEx Services revenue was down 8% to $415 million, due to the September 1, 2009 realignment of FedEx SupplyChain Systems into the FedEx Express segment and declines in copy product revenues.
Total operating income increased 99% to $628 million from $315 million last year, and operating margin rose to 6.6% from 3.9% in the previous year.
Frederick Smith, FedEx chairman, president and chief executive officer, stated, "Strong demand for our services resulted in higher volumes and better revenue per shipment at FedEx Express and FedEx Ground. This increased demand comes from improved global economic conditions and the benefit provided by the strength and flexibility of our unparalleled global networks, which we've improved during the downturn to deliver even more reliability and value to our customers."
In the preceding fourth quarter, the company's net income was $419 million or $1.33 per share, and total revenue was $9.43 billion.
Further, FedEx said it will combine its FedEx Freight and FedEx National LTL operations effective January 30, 2011, aiming to increase efficiencies and reduce operational costs. The combination is expected to result in headcount reduction by about 1,700 full-time employees, and the company will close approximately 100 facilities.
The estimated cost of the program is $150 million to $200 million, primarily related to charges that will be recorded in the second and third quarters of fiscal 2011. The company expects to record $0.14 to $0.18 per share as costs for the second quarter and $0.30 to $0.40 per share for fiscal 2011.
The company noted that the changes, along with its ongoing yield management initiatives, is expected to substantially improve the profitability of the FedEx Freight segment in fiscal 2012.
Looking ahead for the second quarter, the company expects GAAP earnings, including the FedEx Freight combination costs, between $0.97 to $1.21 per share, and earnings excluding items, to be in the range of $1.15 to $1.35 per share. Analysts expect the company to report earnings of $1.36 per share for the quarter. The company reported earnings of $1.10 per share in last year's second quarter.
For fiscal 2011, FedEx now projects earnings to be $4.80 to $5.25 per share, up from the company's previous estimate of $4.60 to $5.20 per share, excluding FedEx Freight combination costs. GAAP Earnings are expected to be $4.40 to $4.95 per share for fiscal 2011. Analysts expect the company to report earnings of $5.19 per share for the year.
For the year, the capital spending forecast has increased to $3.5 billion, primarily due to anticipated aircraft purchases for continued international growth.
Alan Graf, Jr., FedEx executive vice president and chief financial officer, added, "We expect continued strong demand for our package transportation services through at least December. We expect the yield improvement initiatives we have underway, coupled with the current high utilization of our planes, vehicles and facilities, will drive higher earnings, margins and returns."
Among peers, United Parcel Service, Inc. (UPS) reported a surge in second-quarter profit in July and raised its fiscal 2010 earnings per share outlook on expectations of continued momentum in all its segments.
FDX is currently trading at $85.95 in pre-market activity, up $0.86 or 1.01%. For the past year, the stock traded in the range of $69.78-$97.75.
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