FedEx gets 3rd quarter payback from cost-cutting effort
Integrated logistics giant FedEx Corp.'s fiscal third-quarter net income soared 41 percent to $207 million, as cost savings from early retirement and severance programs more than compensated for direct payments to outgoing employees.
The company generated operating income of $372 million during the quarter ended Feb. 29, up 38 percent from the same 2003 period, on revenue of $6 billion. The growing global economy and the strong performance of FedEx International Priority service helped boost revenue 9 percent above the 2003 third-quarter level.
The company took a pretax charge of $14 million during the quarter to continue the workforce reductions announced last year, but it also made about $65 million of savings in lower salaries and benefits.
During the fourth quarter, the Memphis-based company anticipates saving between $50 million to $60 million after spending $10 million on the downsizing initiative. Related savings are expected to be $230 million to $240 million per year in fiscal 2005 and beyond, FedEx said.
The company is projecting a huge fourth-quarter improvement, with earnings jumping from 68 cents per diluted share (up from 49 cents per share a year ago) to between $1.15 to $1.25 per share.
Operating income for express delivery segment FedEx Express jumped 68 percent to $218 million from $130 million in the same 2003 period. Revenue was up 7 percent to $4.37 billion. FedEx did not break out actual profits for each business sector, but said FedEx Express margins rose 5 percent.
FedEx International Priority revenue grew 21 percent for the quarter, as revenue per package grew 10 percent, primarily due to an increase in average weight per package and favorable exchange rate differences, FedEx said. The product also experienced a 10-percent increase in daily volume, led by a 22 percent volume increase in Asia.
Worldwide, FedEx Express average daily package volume grew 1 percent year over year. U.S. domestic express average daily package volume was flat, while U.S. domestic package yield increased 1 percent.
FedEx Express extended its contract earlier this week with the U.S. Postal Service, allowing it to carry more mail through Nov. 30 than required under the original transportation agreement that went into effect in 2001, the company said.
FedEx’s ground parcel segment reported operating income of $112 million, up 3 percent from $109 million in 2003, on an 8 percent increase in revenue to $886 million. Total profitability was down, with margins of 11.6 percent compared with 12.3 percent in the same 2003 quarter due in large measure to an operating loss at FedEx Supply Chain Services. Average daily package volume grew 6 percent in the third quarter, up from the first two quarters this year, driven by growth in FedEx Home Delivery shipments.
Yield improved 4 percent primarily due to a January general rate increase and an increase in extra services revenue, partially offset by higher customer discounts and the elimination of the fuel surcharge in January.
FedEx Freight had an operating profit of $37 million, up 32 percent, on revenue of $630 million, up 11 percent from $568 million.