Strong Demand for FedEx Express International and FedEx Ground Services FedEx Freight to Combine LTL Operations
September 16, 2010
FedEx Corp. (NYSE: FDX) today reported earnings of $1.20 per diluted share for the first quarter ended August 31, up 107% from $0.58 per diluted share a year ago.

"Strong demand for our services resulted in higher volumes and better revenue per shipment at FedEx Express and FedEx Ground," said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. "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."

First Quarter Results

FedEx Corp. reported the following consolidated results for the first quarter:

Revenue of $9.46 billion, up 18% from $8.01 billion the previous year

Operating income of $628 million, up 99% from $315 million last year

Operating margin of 6.6%, up from 3.9% the previous year

Net income of $380 million, up 110% from $181 million a year ago

Earnings increased as a result of strong FedEx International Priority (IP) growth at FedEx Express, continued growth at FedEx Ground and a benefit from the net impact of higher fuel surcharges. The reinstatement of certain employee compensation programs, higher pension, medical and aircraft maintenance expenses, and an operating loss at FedEx Freight dampened the quarter's solid results.

FedEx Freight to Combine Operations

FedEx will combine its FedEx Freight and FedEx National LTL operations effective January 30, 2011. This action will increase efficiencies and reduce operational costs. Additionally, it will provide customers a choice of priority or economy less-than-truckload (LTL) freight services across all lengths of haul from one integrated company. This change, along with the company's ongoing yield management initiatives, is expected to substantially improve the profitability of the FedEx Freight segment in fiscal 2012.

The estimated cost of this program is $150 to $200 million, primarily related to charges that will be recorded in the second and third quarters of fiscal 2011. These charges will include severance costs associated with personnel reductions, lease terminations and certain non-cash charges. The net cash effect from the one-time cost of these actions is expected to be immaterial over time due to anticipated proceeds from asset sales. As a result of this combination, headcount is expected to be reduced by approximately 1,700 full-time employees and approximately 100 facilities will be closed.

Outlook

FedEx projects earnings to be $1.15 to $1.35 per diluted share in the second quarter and $4.80 to $5.25 per diluted share for fiscal 2011, up from the company's previous estimate of $4.60 to $5.20 per diluted share. This guidance excludes any FedEx Freight combination costs, and also assumes the current market outlook for fuel prices and continued moderate growth in the global economy. The company reported earnings of $1.10 per diluted share in last year's second quarter. The capital spending forecast for fiscal 2011 has increased to $3.5 billion, primarily due to anticipated aircraft purchases for continued international growth.

The earnings ranges above exclude the costs from the FedEx Freight combination. Including the expected cost of this program, $0.14 to $0.18 per diluted share for the second quarter and $0.30 to $0.40 per diluted share for fiscal 2011, earnings are expected to be $0.97 to $1.21 per diluted share for the second quarter and $4.40 to $4.95 per diluted share for fiscal 2011. The actual cost will be dependent on the number and timing of employee departures and lease terminations.

"We expect continued strong demand for our package transportation services through at least December," said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. "Shippers of high value-added goods, especially in the technology sector, know that we have unmatched air express capacity to deliver quickly and reliably for them, even when demand surges. 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."