FedEx profit drops 3pc, hit by bad weather, low volumes, high costs

FEDEX has posted a net income of US$231 million for the third quarter ending February 28, representing a year-on-year decrease of three per cent on revenues of $9.66 billion, up 11 per cent over 2010.


Third quarter operating profit was down six per cent year on year to $393 million, and the operating margin at 4.1 per cent was down from 4.8 per cent the previous year.


The company said in a statement that in spite of yields growing in all transport segments, severe winter storms during the quarter disrupted operations, decreased shipping volume and increased expenses. Higher aircraft maintenance expenses and higher-than-expected fuel costs also affected results.


It also incurred additional costs associated with the January combination of the FedEx Freight and FedEx National LTL operations to launch a new unified LTL freight network. The move resulted in one-time costs of $43 million during the quarter under review and $130 million fiscal year-to-date due primarily to lease termination costs and severance expenses.


Looking ahead, chief financial officer Alan Graf said he expects "continued positive yield trends to improve revenues and margins in the fourth quarter and in fiscal 2012."


However, the company also warned: "Earnings could be affected by the impact of the ongoing political turmoil in the Middle East and North Africa on fuel prices and the economy. Also, the near-term impact of the earthquake and tsunami in Japan on operational costs, shipping patterns and the global economy is currently uncertain."


By segment, FedEx Express registered a third quarter 2011 operating income of $178 million, down 33 per cent from $265 million a year ago; revenue amounted to $6.05 billion, up 11 per cent; and an operating margin of 2.9 per cent was down from 4.9 per cent the previous year.


FedEx International Priority's average daily package volume increased five per cent, led by exports from Asia and Europe. Revenue per package grew seven per cent due to improved weight per package, rate increases and higher fuel surcharges. Operating income and margin were down 33 per cent and two per cent, respectively, due to increased aircraft maintenance, the reinstatement of certain employee compensation programmes, higher employee benefits expenses and the negative impact of severe winter weather.


FedEx Ground posted an operating profit of $325 million, up 26 per cent, on revenue of $2.18 billion, up 14 per cent compared to the third quarter of 2010.


FedEx Freight reported an operating loss of $110 million on revenue of $1.12 billion, up eight per cent year on year.
(Source:http://www.schednet.com)