FedEx First Quarter Earnings Drop 36 Percent

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

For the first quarter ended Aug. 31, FedEx had net income of $109 million, compared with $169 million, a year earlier. Results include a non-cash 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 at FedEx said that while FedEx Ground experienced strong growth in both volumes and yields, “weakness in the manufacturing and high-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 last week 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 week's events at this point, but our volumes at FedEx Express were substantially reduced last week while our aircraft were grounded and our volumes have not yet recovered to levels existing prior to the tragedy,” Graf said.

Graf also said that FedEx has had no layoffs in the Express operation to this point, “and we're going to do everything we can in our power to prevent that …Because we believe that the industry will continue to grow, it would be detrimental at this point to have layoffs and then rehire at a later date.''

Graf also said FedEx, along with U.S. airlines, was seeking to recover losses from the U.S. government sustained when its air services were shut down. He said he could not quantify those losses at this time.

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. Major revenue initiatives include:

— Airport-to-airport transportation of Priority, Express and First-Class Mail for the U.S. Postal Service, which began on Aug. 27.

— Expansion of the FedEx Home Delivery network to 80 percent of the U.S. population, beginning Sept. 25. FedEx Home Delivery will open 63 additional locations in regions throughout the US, including 56 co-located terminals with existing FedEx Ground facilities, minimizing capital expenditures.

— FedEx Online Express Savings Program, started on Sept. 4, which allows shippers to receive a 10 percent discount off list rates for many express services when shipping through

— The nationwide placement of up to 10,000 FedEx Drop Boxes outside U.S. Post Offices, more than 4,100 of which have been placed since June 19.

In somewhat related news, FedEx Corp. on Wednesday said they canceled advertising on “Politically Incorrect,” a late-night talk show aired on the ABC television network, after host Bill Maher called some U.S. military actions “cowardly.”

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