Restructuring brings FedEx quarterly profit down 18pc to US$283 million

FEDEX has reported a consolidated net profit of US$283 million for the second quarter ending November 30, representing a year-on-year decrease of 18 per cent, largely the result of internal restructuring costs.

Overall second quarter revenue rose by 12 per cent year on year to $9.63 billion, while operating income of $469 million was down 18 per cent.

"Solid demand for our transportation solutions, customer service from FedEx team members and a healthier global economy helped drive second quarter revenue higher," said FedEx chairman, president and CEO Frederick Smith.

FedEx said that in spite of shipments and yields growing in all transportation segments, earnings were reduced by reorganisation costs from combining FedEx Freight and FedEx National LTL into a single operation, including severance pay from layoffs, dismissals and non-cash asset impairment charges.

It said earnings were also reduced by a reserve for a legal matter at FedEx Express, costing $66 million after an adverse jury decision in the ATA Airlines lawsuit. The reinstatement of certain employee compensation programmes, higher pension and aircraft maintenance expenses, also cut profits.

"We expect margins to improve in the second half of fiscal 2011 and in fiscal 2012, as we continue to benefit from solid global demand for our differentiated services and as cost headwinds subside," said FedEx chief financial officer Alan Graf.

A breakdown of FedEx Corp's three major reporting segments show that in the second quarter FedEx Express saw its operating income fall 23 per cent year on year to $264 million, while its revenue rose 13 per cent to $5.99 billion.

FedEx said it has reached an agreement to acquire Servicios Nacionales Mupa, SA de CV (MultiPack), a Mexican domestic express package delivery company. Last month FedEx Express announced plans to acquire the logistics, distribution and express businesses of AFL Pvt Ltd and its affiliate, Unifreight India Pvt Ltd. "Once completed, these acquisitions will give FedEx more robust domestic transportation and related capabilities in these important global markets," it said.

For the second quarter, the FedEx Ground segment reported operating profit of $296 million, up 24 per cent year on year and revenue increased 13 per cent to $2.08 billion over the same period.

FedEx Ground average daily package volume grew seven per cent in the second quarter driven by increases in the business-to-business market and FedEx Home Delivery. FedEx SmartPost average daily volume increased 17 per cent due to growth in e-commerce, gains in market share and the introduction of new service offerings.

FedEx Freight posted a second quarter operating loss of $91 million, compared with an operating loss of $12 million a year ago on revenues of $1.22 billion, up 14 per cent; and an operating margin of 7.5 per cent compared with 1.1 per cent the previous year.

The operating loss in the quarter largely resulted from $86 million of costs associated with the combination of the FedEx Freight and FedEx National LTL operations, which will become effective January 30. Additional costs associated with this programme totalling $54 to $84 million are expected in the third quarter, the company statement added.
(Source:www.schednet.com)