FedEx profits erode 6% in 3rd quarter

FedEx today blamed a 6 percent decline in third quarter profits to $393 million on high fuel prices and a weak U.S. economy.

Profits were down at its U.S. express, less-than-truckload and FedEx Kinko's units.

The express package delivery and freight transport company reported operating income remained flat at $641 million on a 10 percent rise in revenue to $9.4 billion. Operating margin declined to 6.8 percent from 7.5 percent in last year's third quarter.

Average daily package volume grew 5 percent on the strength of FedEx Ground and FedEx International Priority shipments, as well as recent overseas acquisitions of domestic express couriers.

Memphis, Tenn.-based FedEx reduced its fourth quarter earnings guidance to $1.60 to $1.80 per diluted share compared to $1.96 a year ago, when it benefited from compensation from Airbus related to cancellation of its A380 jet order.

Our fourth quarter earnings outlook has been impacted by higher than anticipated fuel prices and a weak U.S. economy, said Alan B. Graf, the company's chief financial officer, in a statement. Looking ahead to our fiscal 2009, we are expecting a continuation of fourth quarter trends, which would result in limited earnings growth next year. We are scrutinizing all expenses and investments to realign them with the current environment.

FedEx Express posted an 8 percent increase in operating income to $425 million, but margins declined to 6.9 percent from 7.2 percent in the year earlier period. International package revenue climbed 18 percent primarily due to higher fuel surcharges and favorable exchange rates. International package volume grew 6 percent, led by increases in shipments originating in Latin America, the United States and Asia. U.S. domestic revenue per package increased 6 percent due to higher fuel surcharges and higher rates per pound, even as package volume declined 2 percent.

The Express segment was also impacted by higher inter-company charges from FedEx Services (FedEx Kinko's and FedEx Global Supply Chain Services) and investments in the company's China domestic express service, which more than offset the benefits of fuel surcharge timing lag, one additional operating day and exchange rates, FedEx said.

FedEx Ground experienced a 13 percent drop in operating income to $170 million, with margins down three points from last year's 12.9 percent. The company cited legal costs for defending its independent contractor business model in several suits for contributing to higher expenses.

Operating income was down 8 percent to $46 million at FedEx Freight, in large measure to a 3 percent decline in shipment volume.

FedEx said it would slow its FedEx Kinko's store expansion rate in fiscal 2009 due to the weak economy. It now plans to open about 70 new locations compared to 252 to date this year out of a planned 300 openings. 

Source: American Shipper