FDX- Earnings and Cost Control Measures
FedEx Corp. Reports Second Quarter Earnings
Thursday December 18, 7:44 am ET
Announces Broad Cost Reduction Actions Due to Weak Economy
MEMPHIS, Tenn.--(BUSINESS WIRE)--FedEx Corp. (NYSE: FDX - News) today reported earnings of $1.58 per diluted share for the second quarter ended November 30, compared to $1.54 per diluted share a year ago.
“Our financial performance is increasingly being challenged by some of the worst economic conditions in the company’s 35-year operating history,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “We are managing our costs and taking full advantage of market opportunities, and our team members are delivering every day on our promise to ‘make every customer experience outstanding’. However, with the decline in shipping trends during our second quarter and the expectation that economic conditions will remain very difficult through calendar 2009, we are taking additional actions necessary to help offset weak demand, protect our business and minimize the loss of jobs.”
Cost Reductions
FedEx has already taken actions to reduce over $1 billion of expenses for all of fiscal 2009, including:
* Elimination of variable compensation payouts
* Hiring freeze
* Volume-related reductions in labor hours and line-haul expenses
* Discretionary spending cuts
* Personnel reductions at FedEx Freight and FedEx Office
FedEx is now implementing a number of additional cost reduction initiatives to mitigate the effects of deteriorating business conditions, including:
* Base salary decreases, effective January 1, 2009:
o 20% reduction for FedEx Corp. CEO Frederick W. Smith
o 7.5%-10.0% reduction for other senior FedEx executives
o 5.0% reduction for remaining U.S. salaried exempt personnel
* Elimination of calendar 2009 merit-based salary increases for U.S. salaried exempt personnel
* Suspension of 401(k) company matching contributions for a minimum of one year, effective February 1, 2009
These additional actions are expected to reduce expenses by $200 million during the remainder of fiscal 2009 and approximately $600 million in fiscal 2010. In addition to these actions, each operating company is evaluating other measures should business conditions further deteriorate.
Outlook
FedEx reaffirms last week’s earnings estimate of $3.50 to $4.75 per diluted share for fiscal 2009, which assumes weak global macroeconomic conditions, anticipated volume gains from DHL and stable fuel prices. The company’s earnings estimate for the second half of fiscal 2009 is $0.69 to $1.94 per diluted share. FedEx will not provide third quarter guidance due to significant economic uncertainty and the difficulty in forecasting the impact of recently acquired DHL customers. Capital spending is now expected to be $2.4 billion for fiscal 2009, down from $3.0 billion at the start of the year.
“While the departure of DHL from the U.S. domestic package market presents a rare opportunity, significant uncertainty exists in the global economy,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “Our latest earnings outlook reflects that uncertainty and incorporates the expected savings from our cost reduction actions.”
Second Quarter Results
FedEx Corp. reported the following consolidated results for the second quarter:
* Revenue of $9.54 billion, up 1% from $9.45 billion the previous year
* Operating income of $784 million, up from $783 million a year ago
* Operating margin of 8.2%, down from 8.3% the previous year
* Net income of $493 million, up 3% from last year’s $479 million
Total combined average daily package volume in the FedEx Express and FedEx Ground segments was down 2% year over year, as the weak economy reduced demand for shipping services.
Operating income was essentially flat, as the company significantly benefited from rapidly declining fuel prices and from the timing lag that exists between when fuel prices change and when indexed fuel surcharges automatically adjust. These benefits and the cost reduction activities were offset by the negative impact of lower shipping volumes resulting from the weak global economy.
FedEx Express Segment
For the second quarter, the FedEx Express segment reported:
* Revenue of $6.10 billion, up 1% from last year’s $6.04 billion
* Operating income of $540 million, up 2% from $531 million a year ago
* Operating margin of 8.9%, up from 8.8% the previous year
Volume and revenue growth were significantly impacted by global economic weakness. Operating income and margin reflect the benefits of rapidly decreasing fuel prices during the quarter and of the timing lag that exists between when fuel prices change and when indexed fuel surcharges automatically adjust. Results also include benefits from cost-containment activities, such as volume-related reductions in flight hours, labor hours and fuel consumption.
FedEx International Priority® (IP) package revenue grew 1% for the quarter, driven by 8% growth in revenue per package due to higher fuel surcharges. IP average daily package volume declined 7%. FedEx International Priority Freight® revenue grew 4%. U.S. domestic express package volume declined 8%, while revenue per package increased 9% due to higher fuel surcharges.