This summary is based on the second quarter fiscal 2009 earnings call conducted by FedEx Corporation (FDX) on December 18, 2008.
Management:
Vice President, 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 $1.58 a share compared to $1.54 a share last year.
- Earnings rose 3% to $493 million from $479 million in the year-ago period.
- Revenue rose 1% to $9.54 billion.
Second Quarter Highlights
Revenue was $9.54 billion, up 1% from $9.45 billion the previous year.
- Operating income was $784 million, up from $783 million a year ago.
- Operating margin was 8.2%, down from 8.3% the previous year.
- Net income was $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 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 revenue was f $6.10 billion, up 1% from last year’s $6.04 billion.
- Operating income was $540 million, up 2% from $531 million a year ago.
- Operating margin was 8.9%, up from 8.8% the previous year.
- Volume and revenue growth were impacted by global economic weakness. Operating income and margin reflect the benefits of rapidly decreasing fuel prices 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 package revenue grew 1%, 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.
FedEx Ground segment revenue was $1.79 billion, up 5% from last year’s $1.70 billion.
- Operating income was $212 million, up 23% from $173 million a year ago.
- Operating margin was 11.9%, up from 10.2% the previous year.
- FedEx Ground average daily package volume was down 1% year over year, as continued growth in the FedEx Home Delivery service was more than offset by a decline in commercial volume. Yield improved 6% primarily due to higher fuel surcharges. FedEx SmartPost revenue increased 11% with one fewer operating day, while average daily volume grew 16% largely due to DHL’s discontinuation of its @Home service at the beginning of the quarter.
- Operating income was higher primarily due to the timing impact of fuel surcharges.
FedEx Freight segment revenue was $1.20 billion, down 3% from last year’s $1.24 billion.
- Operating income was $32 million, down 59% from $79 million a year ago.
- Operating margin was 2.7%, down from 6.4% the previous year.
- Less-than-truckload (LTL) average daily shipments decreased 2% year over year, as market share gains were more than offset by the weakening U.S. economy. LTL yield declined 1%, as higher fuel surcharges were offset by the effects of a competitive pricing environment.
- Operating income and margin decreased due to the competitive pricing environment and lower average daily shipments, partially offset by the benefits from lower variable incentive compensation and continued cost containment initiatives, including the alignment of staffing to current volume levels.
FedEx Services segment revenue, which includes the operations of FedEx Office and FedEx Global Supply Chain Services, was down 4% year over year, as declines in copy revenues exceeded revenue generated from FedEx Office locations opened in the last year.
The company expects continued deterioration in the core FedEx Office business, and has announced staffing reductions and location closures so that expenses are in line with revenue.
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:
- 20% reduction for FedEx Corp. CEO Frederick W. Smith
- 7.5%-10% reduction for other senior FedEx executives
- 5% 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.
