FedEx gets fiscal boost from ground business

A 12% increase in revenue from its ground operations helped increase FedEx Corp.’s total revenues and profits in its fourth fiscal quarter, as well as for its fiscal year

A 12% increase in revenue from its ground operations helped increase FedEx Corp.’s total revenues and profits in its fourth fiscal quarter, as well as for its fiscal year.

FedEx reported a 7% increase in net income to $610 million on 8% higher revenues of $9.15 billion in its fourth fiscal quarter compared to the same period in fiscal 2006. For fiscal 2007, FedEx said net income went up 12% to $2.02 billion on 9% higher revenues of $35.2 billion compared to fiscal 2006.

“We delivered solid financial results in fiscal 2007, even though we were restrained by a slowing U.S. economy,” said Frederick W. Smith, FedEx’s chairman, president & CEO.

“Though a weakened industrial sector is currently limiting demand for transportation services, we expect the U.S. economy to begin to show modest year-over-year improvement in the late summer to early fall timeframe,” he added. “We remain optimistic about prospects for global economic growth, and will continue to invest in projects critical to achieving strong long-term financial performance.”

Smith noted that revenue grew due to strong FedEx Ground volume growth, as well as continued FedEx Express International Priority revenue growth. Revenue growth also reflected the acquisition of Watkins Motor Lines in September 2006, he added.

The company’s ground segment posted 12% higher revenues of $1.58 billion this year, boosting its operating margin to 17%, up from 14.6% in the previous fiscal year. FedEx Ground average daily package volume grew 8% year over year in the fourth quarter due to increased commercial business and the continued strong growth of its FedEx Home Delivery service, with yield improving 4% primarily due to the impact of rate increases, including dimensional weight charges, and extra service revenues, Smith said.

Things were a little rockier in FedEx’s freight division, however. Though revenue increase 28% to $1.25 billion compared to fiscal 2006, operating income declined 12% to $125 million, down 12% from $142 million a year ago, resulting in an operating margin of 10%, down from 14.6% the previous year. Operating margins declined primarily due to operating losses at FedEx National LTL, which resulted from softening volumes and ongoing expenses to integrate its network, Smith said.

Even as LTL shipments increased 16% year over year due to the acquisition of Watkins (now FedEx National LTL), average daily LTL shipments at FedEx Freight regional were down slightly year over year, as the slower economy continued to negatively impact demand. LTL yield improved 11% year over year, reflecting higher yields from longer-haul FedEx National LTL shipments, higher rates and favorable contract renewals.

For fiscal 2008, FedEx expects to stay profitable but not overly so. Alan Graf, Jr., the company’s executive vp & CFO, said earnings growth is expected to be below FedEx’s long-term 10% to 15% target due to continued soft economic growth and some $3.8 billion worth of planned investments to expand the company’s freight networks and service offerings.

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