FedEx Corp. Reports Fourth Quarter Earnings Growth

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Despite rising fuel costs, FedEx Corp., Memphis, TN, reported stellar earnings late last month for its fourth quarter, which ended May 31, and for its fiscal year.


Fourth-quarter results included revenue of $4.9 billion, up 11 percent from $4.4 billion the previous year; operating income of $426 million, up 9 percent from $390 million a year ago; and net income of $245 million, up 11 percent from last year's $221 million.


Full-year results included revenue of $18.3 billion, up 9 percent from $16.8 billion the previous year; operating income of $1.22 billion, up 5 percent from $1.16 billion a year ago; and net income of $688 million, up 9 percent from last year's $631 million.


FedEx said part of the reason for the growth was the increase in shipments, both domestically and abroad.


In the fourth quarter, for example, U.S. domestic express traffic at FedEx Express reached its highest level in more than a year. Domestic Express volumes increased to 3.8 percent, marking the first quarter in five in which volume growth exceeded 3 percent. In addition, revenue from FedEx International Priority service grew 21 percent in the fourth quarter and 18 percent for the full year. And in the fourth quarter, average daily volume in this category rose 14 percent.


"Our unparalleled global express network is delivering very strong growth, particularly in Asian and European markets," Frederick W. Smith, chairman and president/CEO, said in a statement.


Alan B. Graf Jr., executive vice president and chief financial officer, said he expects growth to continue.


"In fiscal 2001, we expect to improve growth and profitability largely through new initiatives that are allowing us to offer the entire spectrum of FedEx services through a single point of access," he said. "We also intend to better serve small and medium-sized businesses by giving them more choices and easy-to-use, information-rich solutions to meet all their shipping needs -- from express to more economical, ground-based transportation."


He said that while the new initiatives will undoubtedly increase expenses, particularly in the first quarter, "we anticipate another record year for sales and profit as well as improving returns and cash flow."


Graf said that an increase in fuel expenses in the fourth quarter was offset by revenue generated by fuel surcharges, which increased from 3 percent to 4 percent in April. Fuel prices, he said, resulted in $84 million in additional expenses during the quarter and $273 million for the full fiscal year.


Other divisions of FedEx also reported growth.


For the fourth quarter, FedEx Ground, the small-package ground delivery service provider, reported revenue of $549 million, up 10 percent from last year's $501 million. It also saw average daily volume grow more than 3 percent during the quarter.


On the other hand, its operating income of $70 million is down slightly from $71 million a year ago.


The company incurred $11 million in losses associated with the first quarter of operations of the company's FedEx Home Delivery service for business-to-consumer shippers and their residential customers. It offers the industry's first money-back guarantee for residential ground delivery.


The company expects to incur losses of about $50 million in fiscal 2001, including the accelerated expansion of Home Delivery.


FedEx announced this acceleration plan late last month. It expects the Home Delivery service to reach roughly 80 percent of the U.S. population by fall 2001 and full U.S. coverage by September 2002, more than one year earlier than originally scheduled.


In March, this service began making deliveries to residences in the largest U.S. metropolitan areas, which account for 50 percent of the U.S. population. Currently, 64 dedicated delivery facilities serve these customers.


Through a two-phase expansion plan beginning this month, FedEx Ground will open approximately 150 new FedEx Home Delivery terminals to increase the network's service coverage.


Among other features, the service offers shippers an expanded delivery window, 9 a.m. to 8 p.m. Tuesday through Saturday; guaranteed select-day delivery, which enables recipients to choose the day of the week, including Saturday, for package delivery; and guaranteed appointment delivery, which confirms delivery within one hour of a time specified by the recipient when contacted by the local FedEx Home Delivery terminal.


Analysts, however, are not concerned about the expansion and are viewing FedEx's growth positively.


"Strong core FedEx ground operations, improving domestic express volumes and strong domestic and international yield trends characterized the quarter and continue," said Ed Wolfe, a transportation analyst at Bear Stearns & Co., New York. "Without $12 million of start-up losses attributed to the rollout of FedEx ground's Home Delivery Product, FedEx ground would have posted year-over-year operating income up over 15 percent and a UPS-like 85.1 percent operating ratio."
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