This summary is based on the first quarter fiscal 2009 earnings call conducted by FedEx Corporation (FDX) on September 18, 2008.
Management:
Head, Investor Relations: Mickey Foster
Chairman, President and CEO: Fred Smith
Executive Vice President and CFO: Alan Graf
Executive Vice President, Market Development and Corporate Communications: Mike Glenn
Executive Vice President, General Counsel and Secretary: Chris Richards
Executive Vice President, FedEx Information Services and CIO: Rob Carter
President and CEO of FedEx Express: Dave Bronczek
President and CEO of FedEx Ground: Dave Rebholz
President and CEO of FedEx Freight: Doug Duncan
Key Investors Issues
- EPS were $1.23 a share compared to $1.58 a share last year.
- Net income fell to $384 million from $494 million in the year-ago period.
- Revenues increased 8% to $9.97 billion.
First Quarter Highlights
Earnings were $1.23 per share compared to $1.58 per share a year ago.
- Overall revenues increased 8% to $9.97 billion led by higher fuel surcharges, 4% higher FedEx Ground average daily volumes and 4% higher FedEx Freight average daily shipment. Results were negatively impacted by the continued weak US economy which is being affected by ongoing high fuel prices.
- FedEx Express segment revenues increased 9% primarily due to yield increases driven by increases in fuel surcharges. These yield increases were partially offset by decreased volumes in US Domestic package and Freight services as the weak US economy and persistently higher fuel prices and the related impact on fuel surcharges have reduced demand for these services and pressured based yields.
- The price per gallon of jet fuel increased 77% versus last years first quarter average. US Domestic Express yields increased 13% although base yields excluding the fuel surcharge increased less than 1%.
- Package volumes declined 5%.
- International Priority revenues increased 12% with yields up 14%. Fuel surcharge and exchange rate benefits provided 13 of the 14 percentage point increase in yield. International Priority volumes were flat due to a softening in all major regions of the global economy, most notably Asia/Pacific and US outbound.
- Cost containment activities combined with lower variable incentive compensation partially mitigated a negative impact of these factors on operating results. Key cost containment activities included reductions in flight and labor hours, reductions in fuel consumption and maintenance costs, freezes in hiring for most open positions.
- FedEx Express will increase shipping rates by an average of 6.9% for US and US Export Services effective January 5, 2009. The rate increase will partially offset by adjusting the fuel price at which the fuel surcharge begins, reducing the fuel surcharge by two percentage points.
FedEx Ground segment revenues increased 9% due to yield and volume growth partially offset by one fewer operating day.
- Average daily volumes at FedEx Ground increased 4% due to the continued growth of FedEx home delivery service and increased commercial business resulting with market share gains. FedEx Ground segment operating income was higher as revenue growth and other operating expenses offset higher fuel prices in a competitive pricing environment.
- At Ground, fuel costs increased 118% primarily due to increase in the average price per gallon of diesel fuel. Rent expense increased 19% due to higher spending on facilities associated with continuing multi-year capacity expansion plan. Purchased transportation costs increased 13% as the result of higher rates paid to independent contractors and increased fuel supplement costs. Ground continues to improve its already high service level and speed up significant numbers of lanes the company continues to invest in the customer experience.
FedEx Freight segment revenues increased 10% due to higher less than truckload yields and shipment growth again partially offset by one fewer operating day.
Less than truckload yield increased 5% due to higher fuel surcharges despite the 25% rate reduction implemented in July 2007 and tough pricing environment base yields declined. Fuel costs at Freight increased 58% due to an increase in the average price per gallon of diesel fuel.
Average daily less than truckload shipments increased 4% resulting from market share gains despite the weak US economy and again a competitive pricing environment. FedEx Freight segment operating income and operating margin decreased due to the fuel surcharge rate reduction implemented in July 2007 and higher purchased transportation costs.
Second Quarter 2009 Outlook
- The company expects earnings to be $1.40 to $1.60 per share compared to $1.54 a year ago.
- Home price declines, lower construction starts, deteriorating credit market conditions and the lingering impact of Hurricane Ike will restrain the US economy and the rising US dollar until at least recently may negatively impact exports. This guidance incorporates oil prices of approximately $95 per barrel and the related impact on fuel surcharges which of course are reducing demand for services and adversely affecting base rates across the company’s transportation segments.
- The company will continue to have cost management initiatives in place across all segments including controlling discretionary spending and severely restricting staffing. CapEx has been reduced to $2.6 billion and the company will continue to balance deferring capital while continuing to invest strategically in growing service lines, expanding global networks and broadening service offerings to position for strong growth and better economic times.
Fiscal 2009 Outlook
- The company is reaffirming earnings estimate of $4.75 to $5.25 per share which reflects weaker global macro economic conditions.
- The company was able to lower capital spending forecast by $400 million from about $3 billion to $2.6 billion.
Key questions from the first quarter earnings call conducted by FedEx Corporation on September 18, 2008.
Art Hatfield (Morgan Keegan):
What would be your expectations if you even have any with regard to growth as the US comes out how far the rest of the world would lag behind the US?
Fred Smith: About a year ago this time I gave an interview to the Financial Times and the focus of the interview was has the world disconnected from the US economy. At the time there was a theory out there that the growth in Euro land and Asia centered around China was no longer directly related to the United States to the extent that it had been. My response to that question was that that was nonsense that the rest of the world would definitely follow the United States if our economy went south. The world has slowed down particularly in Europe. Asia is still growing because of the emerging China economy, the Entra Asia market in particular. The world is in the midst of a slow down which was led by the United States. We obviously have gone into a new realm on all these credit problems but people sometimes forget there is the industrial economy and there is the simple economy or the financial sector. The two while they are higher related in many ways they also beat to a different drummer in many respects as well.
