FedEx Corp. Reports Third Quarter Earnings

March 17, 2011

FedEx Corp. (NYSE: FDX) today reported earnings of $0.73 per diluted share for the third quarter ended February 28. Excluding costs related to the previously announced combination of the company’s FedEx Freight and FedEx National LTL operations, third quarter earnings were $0.81 per diluted share, compared to $0.76 per diluted share a year ago.

“Continued growth in the global economy is driving solid revenue gains in our transportation businesses,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “We expect strong demand for our services to boost our financial performance in our fourth quarter.”

Third Quarter Results

FedEx Corp. reported the following consolidated results for the third quarter:

  • Revenue of $9.66 billion, up 11% from $8.70 billion the previous year
  • Operating income of $393 million, down 6% from $416 million last year
  • Operating margin of 4.1%, down from 4.8% the previous year
  • Net income of $231 million, down 3% from $239 million a year ago

While yields grew in all transportation segments, unusually severe winter storms during the quarter disrupted operations, decreased shipping volume and increased costs, impacting year-over-year results by approximately $0.12 per diluted share. Earnings were also reduced by costs related to the January 30, 2011 combination of FedEx Freight and FedEx National LTL operations, including lease termination costs and severance expenses. The reinstatement of merit salary increases, increases in pension and medical costs, higher aircraft maintenance expenses and the full reinstatement of 401(k) company-matching contributions also impacted earnings.


FedEx projects earnings to be $1.66 to $1.83 per diluted share in the fourth quarter and an adjusted $4.83 to $5.00 per diluted share for fiscal 2011. The company’s forecast assumes the current market outlook for fuel prices and continued moderate growth in the global economy. 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. The annual guidance excludes FedEx Freight combination costs and a second quarter legal reserve. Including costs from the FedEx Freight combination and the legal reserve, earnings are expected to be $4.49 to $4.66 per diluted share for fiscal 2011. The company reported earnings of $1.33 per diluted share in last year’s fourth quarter. The capital spending forecast for fiscal 2011 remains $3.5 billion.

“Successful yield management initiatives helped drive significant revenue growth across our transportation segments in the third quarter, although results were dampened by severe winter storms and higher-than-expected fuel costs,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “Our FedEx Ground segment had record third quarter results. In addition, we are very pleased with the execution of the new FedEx Freight strategy, which is expected to drive FedEx Freight’s return to profitability in the fourth quarter. More broadly, we expect continued positive yield trends to improve revenues and margins in the fourth quarter and in fiscal 2012.”

FedEx Express Segment

For the third quarter, the FedEx Express segment reported:

  • Revenue of $6.05 billion, up 11% from last year’s $5.44 billion
  • Operating income of $178 million, down 33% from $265 million a year ago
  • Operating margin of 2.9%, down from 4.9% the previous year

FedEx International Priority (IP) average daily package volume increased 5%, led by exports from Asia and Europe. IP revenue per package grew 7% due to improved weight per package, rate increases and higher fuel surcharges. IP freight pounds increased 21% with revenue per pound up 3%. U.S. domestic average daily package volume increased 2% and revenue per package grew 5% due to higher fuel surcharges, rate increases and improved weight per package.

Operating income and margin were negatively impacted by increased aircraft maintenance, the reinstatement of certain employee compensation programs, higher employee benefits expenses and the negative impact of severe winter weather, which more than offset strong revenue growth.

During the quarter FedEx completed the acquisition of the logistics, distribution and express businesses of AFL Pvt. Ltd. and its affiliate, Unifreight India Pvt. Ltd. This acquisition provides FedEx more robust domestic transportation and added capabilities in India. The acquisition had no material impact on segment financial results for the quarter.

FedEx Ground Segment

For the third quarter, the FedEx Ground segment reported:

  • Revenue of $2.18 billion, up 14% from last year’s $1.91 billion
  • Operating income of $325 million, up 26% from $258 million a year ago
  • Operating margin of 14.9%, up from 13.5% the previous year

FedEx Ground average daily package volume grew 6% in the third quarter driven by increases in the business-to-business market and FedEx Home Delivery. Yield increased 5% primarily due to rate increases and higher fuel surcharges. FedEx SmartPost average daily volume increased 17% due to growth in e-commerce, gains in market share and the introduction of new service offerings. FedEx SmartPost yield increased 7% primarily due to lower postage costs resulting from increased deliveries to U.S. Postal Service final destination facilities and increased fuel surcharges.

Operating income and margin increased primarily due to higher package yield and volume. Current year results were also favorably impacted by one additional operating day.

FedEx Freight Segment

For the third quarter, the FedEx Freight segment reported:

  • Revenue of $1.12 billion, up 8% from last year’s $1.04 billion
  • Operating loss of $110 million, compared with an operating loss of $107 million a year ago
  • Operating margin of (9.8%), compared with (10.3%) the previous year

Less-than-truckload (LTL) yield increased 11% primarily due to yield management initiatives. LTL average daily shipments decreased 6% as a result of the yield management initiatives and the severe winter weather.

On January 30, 2011, FedEx Freight and FedEx National LTL combined operations, launching a new unified LTL freight network that offers customers the choice of two levels of service”FedEx Freight Priority and FedEx Freight Economy”from a single company. As a result of this combination, the segment incurred one-time costs of $43 million during the quarter and $130 million fiscal year-to-date due primarily to lease termination costs and severance expenses.

The operating loss in the quarter included the costs associated with the combination of the FedEx Freight and FedEx National LTL operations. Severe winter weather also significantly impacted results. The segment benefited from one additional operating day during the quarter.

Corporate Overview

FedEx Corp. (NYSE: FDX) provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenues of $38 billion, the company offers integrated business applications through operating companies competing collectively and managed collaboratively, under the respected FedEx brand. Consistently ranked among the world’s most admired and trusted employers, FedEx inspires its more than 290,000 team members to remain “absolutely, positively” focused on safety, the highest ethical and professional standards and the needs of their customers and communities. For more information, visit .

Additional information and operating data are contained in the company’s annual report, Form 10-K, Form 10-Qs and third quarter fiscal 2011 Statistical Book. These materials, as well as a Webcast of the earnings release conference call to be held at 8:30 a.m. EDT on March 17 are available on the company’s Web site at . A replay of the conference call Webcast will be posted on our Web site following the call.

Certain statements in this press release may be considered forward-looking statements, such as statements relating to management’s views with respect to future events and financial performance. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from historical experience or from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, economic conditions in the global markets in which we operate, legal challenges or changes related to FedEx Ground’s owner-operators, new U.S. domestic or international government regulation, the impact from any terrorist activities or international conflicts, our ability to effectively operate, integrate and leverage acquired businesses, changes in fuel prices and currency exchange rates, our ability to match capacity to shifting volume levels and other factors which can be found in FedEx Corp.’s and its subsidiaries’ press releases and filings with the SEC.



The company believes that meaningful analysis of our financial performance requires an understanding of the factors underlying that performance and our judgments about the likelihood that particular factors will repeat. Excluding a reserve associated with a legal matter in the second quarter and the costs of the combination of FedEx Freight and FedEx National LTL operations from our third quarter earnings and our full-year earnings guidance, net of applicable incentive compensation impacts, will allow more accurate comparisons to prior periods of our third quarter operating performance and our expected operating performance for fiscal 2011. As required by SEC rules, the tables below present a reconciliation of our presented non-GAAP measures to the most directly comparable GAAP measures.


Fiscal 2011 Third Quarter Earnings
Q3 Diluted

Earnings Per Share

Non-GAAP Measure$0.81
FedEx Freight Combination Costs(0.08)
GAAP Measure$0.73
Fiscal 2011 Full-Year Earnings Guidance
FY 2011 Diluted

EPS Guidance

Non-GAAP Measure$4.83 to $5.00
FedEx Freight Combination Costs(0.27)
ATA Legal Reserve(0.07)
GAAP Measure$4.49 to $4.66
Third Quarter Fiscal 2011
(In millions, except earnings per share and FTEs)
Three Months EndedNine Months Ended
February 28February 28
FedEx Express segment$6,049$5,44011%$17,953$15,67815%
FedEx Ground segment2,1841,91014%6,2225,47714%
FedEx Freight segment1,1231,0408%3,6023,09017%
FedEx Services segment397406(2%)1,2461,322(6%)
Other & eliminations(90)(95)5%(271)(261)(4%)
Total Revenue9,6638,70111%28,75225,30614%
Operating Expenses:
Salaries and employee benefits3,8283,5498%11,41010,35010%
Purchased transportation1,4461,22019%4,1633,42921%
Rentals and landing fees6215935%1,8501,7645%
Depreciation and amortization4934881%1,4741,4700%
Maintenance and repairs48040419%1,4701,21521%
Impairment and other charges21NM88NM
Total Operating Expenses9,2708,28512%27,26224,00414%
Operating Income (Loss):
FedEx Express segment178265(33%)79971412%
FedEx Ground segment32525826%90870529%
FedEx Freight segment(110)(107)(3%)(217)(117)(85%)
Total Operating Income393416(6%)1,4901,30214%
Other Income (Expense):
Interest, net(24)(19)26%(65)(52)25%
Other, net(9)(16)(44%)(25)(28)(11%)
Total Other Income (Expense)(33)(35)(6%)(90)(80)13%
Pretax Income360381(6%)1,4001,22215%
Provision for Income Taxes129142(9%)50645711%
Net Income$231$239(3%)$894$76517%
Diluted Earnings Per Share$0.73$0.76(4%)$2.82$2.4316%
Weighted Average Diluted Common and Common Equivalent Shares3173151%3163141%
Capital Expenditures$643$43249%$2,703$1,98136%
Average Full-Time Equivalents (000s)2592504%2552445%
Third Quarter Fiscal 2011
(In millions)
Feb. 28, 2011
(Unaudited)May 31, 2010
Current Assets
Cash and cash equivalents$1,359$1,952
Receivables, less allowances4,4784,163
Spare parts, supplies and fuel, less allowances413389
Deferred income taxes540529
Prepaid expenses and other448251
Total current assets7,2387,284
Property and Equipment, at Cost33,07831,302
Less accumulated depreciation and amortization17,75016,917
Net property and equipment15,32814,385
Other Long-Term Assets
Other assets1,3151,033
Total other long-term assets3,6363,233
Current Liabilities
Current portion of long-term debt$18$262
Accrued salaries and employee benefits1,1431,146
Accounts payable1,5901,522
Accrued expenses1,8231,715
Total current liabilities4,5744,645
Long-Term Debt, Less Current Portion1,6671,668
Other Long-Term Liabilities
Deferred income taxes1,328891
Pension, postretirement healthcare and other benefit obligations1,5981,705
Self-insurance accruals976960
Deferred lease obligations769804
Deferred gains, principally related to aircraft transactions252267
Other liabilities158151
Total other long-term liabilities5,0814,778
Commitments and Contingencies
Common Stockholders’ Investment
Common stock, $0.10 par value, 800 million shares authorized3131
Additional paid-in capital2,4082,261
Retained earnings14,70913,966
Accumulated other comprehensive loss(2,256)(2,440)
Treasury stock, at cost(12)(7)
Total common stockholders’ investment14,88013,811
Third Quarter Fiscal 2011
(In millions)
Nine Months Ended
February 28
Operating Activities:
Net income$894$765
Noncash charges:
Depreciation and amortization1,4741,470
Other, net662363
Changes in operating assets and liabilities, net(573)(690)
Cash provided by operating activities2,4571,908
Investing Activities:
Capital expenditures(2,703)(1,981)
Business acquisitions, net of cash acquired(96)
Proceeds from asset dispositions and other1531
Cash used in investing activities(2,784)(1,950)
Financing Activities:
Principal payments on debt(262)(632)
Dividends paid(113)(103)
Other, net7529
Cash used in financing activities(300)(706)
Effect of exchange rate changes on cash345
Net decrease in cash and cash equivalents(593)(743)
Cash and cash equivalents at beginning of period1,9522,292
Cash and cash equivalents at end of period$1,359$1,549
Third Quarter Fiscal 2011
(Dollars in millions)
Three Months EndedNine Months Ended
February 28February 28
FINANCIAL HIGHLIGHTS20112010%20112010%
Operating Expenses:
Salaries and employee benefits2,3212,1369%6,8326,21510%
Purchased transportation38629232%1,14383038%
Rentals and landing fees4243977%1,2541,1786%
Depreciation and amortization2672545%7877574%
Maintenance and repairs33026126%1,00278927%
Intercompany charges4984970%1,5231,4366%
Total Operating Expenses5,8715,17513%17,15414,96415%
Operating Income$178$265(33%)$799$71412%
Operating Margin2.9%4.9%(2.0 pts)4.5%4.6%(0.1 pts)
Operating Weekdays6262190190
Average Daily Package Volume (000s):
U.S. Overnight Box1,2181,1902%1,1941,1573%
U.S. Overnight Envelope6316015%6276083%
U.S. Deferred9529490%8878761%
Total U.S. Domestic Package2,8012,7402%2,7082,6413%
International Priority5585305%56951111%
International Domestic3373176%3383157%
Total Average Daily Packages3,6963,5873%3,6153,4674%
Average Daily Freight Pounds (000s):
International Priority3,1312,57721%3,1582,42730%
International Airfreight1,2621,1847%1,2481,2301%
Total Avg Daily Freight Pounds12,39311,6676%11,85310,8749%
Revenue Per Package:
U.S. Overnight Box$20.05$19.165%$19.81$18.736%
U.S. Overnight Envelope10.8710.702%10.6810.413%
U.S. Deferred12.6011.777%12.2911.537%
Total U.S. Domestic Package15.4514.745%15.2314.436%
International Priority57.0753.237%55.0652.595%
International Domestic7.547.224%7.337.123%
Composite Package Yield$21.01$19.766%$20.77$19.397%
Revenue Per Freight Pound:
International Priority2.122.063%2.091.976%
International Airfreight0.880.845%0.880.7911%
Composite Freight Yield$1.36$1.268%$1.37$1.2410%
Average Full-Time Equivalents (000s)1361305%1331275%
1 – Current year includes a $66 million reserve for a legal matter.
Third Quarter Fiscal 2011
(Dollars in millions)
Three Months EndedNine Months Ended
February 28February 28
Operating Expenses:
Salaries and employee benefits32928914%95485911%
Purchased transportation91177118%2,5382,19716%
Depreciation and amortization84831%249251(1%)
Maintenance and repairs4041(2%)1261196%
Intercompany charges2212077%66958714%
Total Operating Expenses1,8591,65213%5,3144,77211%
Operating Income$325$25826%$908$70529%
Operating Margin14.9%13.5%1.4 pts14.6%12.9%1.7 pts
Operating Weekdays63622%1911901%
Average Daily Package Volume (000s)
FedEx Ground3,8823,6746%3,7513,5266%
FedEx SmartPost1,7361,48917%1,4331,24815%
Yield (Revenue Per Package)
FedEx Ground$8.16$7.755%$8.01$7.635%
FedEx SmartPost$1.70$1.597%$1.70$1.5311%
Third Quarter Fiscal 2011
(Dollars in millions)
Three Months EndedNine Months Ended
February 28February 28
Operating Expenses:
Salaries and employee benefits5625326%1,7461,55213%
Purchased transportation178191(7%)56747719%
Depreciation and amortization4849(2%)1581505%
Maintenance and repairs443622%13510529%
Intercompany charges106997%32324930%
Impairment and other charges121NM88NM
Total Operating Expenses1,2331,1477%3,8193,20719%
Operating Loss($110)($107)(3%)($217)($117)(85%)
Operating Margin(9.8%)(10.3%)0.5 pts(6.0%)(3.8%)(2.2 pts)
LTL Operating Weekdays62612%1891881%
LTL Shipments Per Day (000s)78.383.4(6%)86.679.19%
Weight Per LTL Shipment (lbs)1,1511,1332%1,1331,1241%
LTL Revenue/CWT$18.66$16.8211%$18.04$17.245%
1 – Current year includes charges associated with the combination of FedEx Freight and FedEx National LTL operations, which became effective January 30, 2011.

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