Update: FedEx 1Q Earnings Drop 36 Percent; CNF Expects Loss

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FedEx Corp. said late last month that fiscal first-quarter earnings fell 36 percent on reduced demand for its FedEx Express premium services.


For the first quarter, which ended Aug. 31, FedEx had net income of $109 million compared with $169 million a year earlier. Results include a noncash charge of 5 cents a diluted share related to an accounting change. Operating income was $235 million, down 24 percent from $311 million a year ago.


Revenues for the first quarter came to $5.04 billion, up 5 percent from $4.8 billion the year earlier.


Alan B. Graf Jr., executive vice president and chief financial officer, said that while FedEx Ground experienced strong growth in both volumes and yields, "weakness in the manufacturing and hi-tech sectors reduced demand for our premium services at FedEx Express."


At FedEx Express, U.S. domestic average daily volume declined 7 percent year over year for the first quarter while volume from its FedEx International Priority service was down 1 percent. At FedEx Ground, average daily volume grew 8 percent on the strength of FedEx Home Delivery and core business-to-business shipments.


FedEx operations were disrupted by the two-day suspension in air traffic stemming from the attacks on the World Trade Center and the Pentagon.


"It is extremely difficult for us to fully assess the financial effects of last [month's] events at this point, but our volumes at FedEx Express were substantially reduced ... while our aircraft were grounded and our volumes have not yet recovered to levels existing prior to the tragedy," Graf said.


Graf also said FedEx, along with U.S. airlines and other cargo airlines, are seeking to recover losses sustained when air services were shut down. FedEx could not yet quantify those losses and did not know exactly how money will be allotted to cargo airlines such as FedEx and UPS.


However, the company continues to implement revenue enhancement and cost reduction programs to provide long-term revenue and profit growth and to reduce costs to match near-term business levels.


Trucking and shipping firm CNF Inc., Palo Alto, CA, also announced last month that it expects to report a loss estimated to be in the range of 15 cents to 20 cents per share for its third quarter, including a previously announced charge at Menlo Logistics from the business failure of a major customer.


CNF expects to announce its third-quarter results Oct. 17.


Emery Worldwide, the heavyweight cargo transportation subsidiary of CNF, is expected to report a larger loss in the third quarter than originally anticipated. The increased loss is due to significantly lower freight volumes experienced during the quarter compared to the prior year, the approximately $16 million net cost of providing a substitute fleet of aircraft following an interim agreement between Emery Worldwide Airlines and the Federal Aviation Administration, the cost of addressing the FAA's issues with the airline, and the lost revenue from last week's grounding of all commercial airline flights in the United States following the terrorist attacks on the East Coast.


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