Net income rises but results weak due to economy: FedEx

FedEx Corp. announced that fourth quarter financial results were weaker than expected due to a downturn in America’s industrial sector.

Memphis-based FedEx said profits rose 7.4 percent to $610 million, from $568 million, for the year ago period. However, this gain was driven largely by a hefty settlement award from Airbus related to the A380 order cancellation. In November, FedEx canceled its order for 10 Airbus A380 jets, the first customer to retract an order for the new jumbo double-decker plane that has been dogged by numerous delays.

“FedEx delivered solid financial results in fiscal 2007 even though we were restrained by a slowing U.S. economy,” said Frederick W. Smith, FedEx Corp. chairman/president and CEO, in a statement.

FedEx Corp. also reported revenue of $9.15 billion, up 8 percent from $8.49 billion the previous year; operating income of $1.01 billion, up 9 percent from $927 million a year ago; and operating margin of 11.1 percent, up from 10.9 percent the previous year.

“The weakened industrial sector is currently limiting demand for transportation services, but we expect the U.S. economy to begin to show modest year-over-year improvement in the late summer to early fall time frame,” Mr. Smith said. “We remain optimistic about prospects for global economic growth, and will continue to invest in projects critical to achieving strong long-term financial performance.”

Total combined average daily package volume at FedEx Express and FedEx Ground grew approximately 4 percent year over year for the quarter, led by growth in ground and international express shipments. Shipment volumes and revenues at FedEx Express, FedEx Ground and FedEx Freight were lower than anticipated in the fourth quarter due to the softer economy.

For the full year, FedEx reported revenue of $35.2 billion, up 9 percent from $32.3 billion the previous year; operating income of $3.28 billion, up 9 percent from $3.01 billion a year ago; operating margin of 9.3 percent — unchanged from 9.3 percent the previous year; and net income of $2.02 billion, up 12 percent from last year’s $1.81 billion.

FedEx said revenue grew due to strong FedEx Ground volume growth, as well as continued FedEx Express International Priority revenue growth. Revenue growth also reflected the acquisition of Watkins Motor Lines in September 2006. Fiscal 2007 results included costs associated with upfront compensation and benefits under the new pilot labor contract at FedEx Express.

Assuming an improvement in the U.S. economy beginning in the late summer or early fall, FedEx said it expects earnings to be $1.45 to $1.60 per share in the first quarter of fiscal 2008 and $7.00 to $7.40 per share for the full year. Earnings growth is expected to be below the company’s long-term 10 percent to 15 percent target, due to continued soft economic growth and planned investments to expand the company’s networks and broaden its service offerings.

“We are making significant investments in our global networks,” said Alan B. Graf Jr., executive vice president and chief financial officer at FedEx. “Our investments are targeted to programs and services that will drive long-term earnings growth, improve service quality to our customers and increase productivity. We remain highly focused on our long-term financial goals of improving earnings, margins, operating cash flows and returns for our shareowners.”

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