FedEx posts profit gains

Dec. 22, 2005
FedEx Corp. has reported its profits surged 33% during the second quarter of its 2006 fiscal year on 10% higher revenues

FedEx Corp. has reported its profits surged 33% during the second quarter of its 2006 fiscal year on 10% higher revenues. Its LTL subsidiary, FedEx Freight, posted 8% higher yields on 14% growth in revenues.

Revenue for FedEx overall climbed to $8.09 billion, up 10% from $7.33 billion in the second quarter of its 2005 fiscal year, with net income reaching $471 million, up 33% from $354 million the previous year.

Revenue from the company’s ground shipment business climbed 11% to $1.31 billion, with operating margins increasing to 12.5%, up from 11.5% the previous year. Average daily package volume in the ground segment grew 4% year over year.

FedEx noted that, although yields improved 6%, profit growth primarily came from the reintroduction of a fuel surcharge, higher extra service revenue and the impact of rate increases made in January 2005.

On the LTL side, FedEx Freight posted revenue of $932 million, up from $820 million in during the second quarter of its 2005 fiscal year, with operating margins increasing to 14.5% from 12.5% the previous year. The company noted that FedEx Freight’s yield improved to 8% year over year largely on the basis of incremental fuel surcharges and higher rates, with average daily LTL shipments increasing 5% year over year.

“Customer demand for our broad portfolio of transportation services, a disciplined pricing approach and strong productivity gains led to a sharp improvement in our operating margins,” said Frederick Smith, FedEx chairman, president and CEO.

“[We’re] also benefiting from solid economic growth year over year in the U.S. and Asian economies, which we expect to continue in 2006,” he added.

Alan Graf, Jr., FedEx’s executive vp & CFO, noted that the company expects third quarter 2006 fiscal year earnings to reach $1.15 to $1.30 per share, while raising projections for total 2006 fiscal year earnings to $5.45 to $5.70 per share from previous estimates of $5.25 to $5.50 per diluted share.

“We exceeded our original forecast for the second quarter due to outstanding operational performance and the deferral of certain advertising and promotional expenses to the second half of the fiscal year,” said Graf. “Our increased earnings guidance for the full year reflects confidence in our ability to continue executing our business strategy, manage our cost structure and leverage sustained economic growth.”

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