Economy takes wind out of FedEx growth

Economy takes wind out of FedEx growth FedEx Corp. on Thursday reported flat revenue and earnings results for its second quarter compared with a year ago.
      By FedEx’s high growth standards the numbers are not good, but relative to other companies that are experiencing significant profit declines or losing money, the express delivery and logistics company is weathering the recessionary economy better than most.
      The company said its operating income was $784 million, up from $783 million in the 2007 second quarter, while net income was $493 million versus $479 million. Revenue was up 1 percent to $9.54 billion, while operating margin was down to 8.2 percent from 8.3 percent.
      Total combined average daily package volume in the FedEx Express and FedEx Ground segments was down 2 percent year over year, as the weak economy reduced demand for shipping services.
      FedEx announced additional cost-cutting measures to mitigate against a continuing drop in volumes, to include cutting Chief Executive Officer Frederick Smith’s base salary by 20 percent, cutting salaries of other top executives by 7.5 percent to 10 percent, instituting a 5 percent salary reduction for other salaried exempt personnel and eliminating bonus pay.
      The company is also suspending matching contributions to employee 401K retirement plans.
      The moves are expected to reduce expenses by $200 million during fiscal 2009 and $600 million in fiscal year 2010.
      FedEx earlier eliminated more than $1 billion expenses by instituting a hiring freeze, reducing labor hours and line-haul to match volume, laying off personnel at FedEx Freight and FedEx Office and other actions.
      “Our financial performance is increasingly being challenged by some of the worst economic conditions in the company's 35-year operating history,' Smith said.
      The Memphis, Tenn.-based transport provider reaffirmed last week's earnings estimate of $3.50 to $4.75 per diluted share for fiscal 2009, which assumes weak global macroeconomic conditions, anticipated volume gains from DHL and stable fuel prices. The company's earnings estimate for the second half of fiscal 2009 is 69 cents to $1.94 per diluted share. FedEx will not provide third quarter guidance due to significant economic uncertainty and the difficulty in forecasting the impact of recently acquired DHL customers. Capital spending is now expected to be $2.4 billion for fiscal 2009, down from $3 billion at the start of the year.
      'While the departure of DHL from the U.S. domestic package market presents a rare opportunity, significant uncertainty exists in the global economy,' said Alan B. Graf Jr., FedEx Corp. executive vice president and chief financial officer.
      FedEx Express operating margin and profits (up 2 percent) were beneficiaries of fuel surcharge recovery programs at a time when fuel prices were sharply declining, the company said.
      FedEx Freight truck volumes decreased 2 percent on a daily basis and operating income fell 59 percent to $32 million. ' Eric Kulisch