FedEx Corp. reported revenues of US$11.3 billion for the third quarter that ended on February 28 of 2014, up 3 per cent from $11.0 billion recorded during the third quarter of the previous year. Operating income of $641 million was recorded, up 9 per cent from $589 million in 2013, as well as an operating margin of 5.7 per cent, up from 5.4 per cent the previous year. Reported net income was $378 million, up 5 per cent from last year’s $361 million.
Unusually severe winter storms throughout the quarter disrupted operations, decreasing shipping volume and increasing costs, and impacted year-over-year operating income by an estimated $125 million. Last year’s third quarter results were impacted by business realignment costs totaling $47 million, primarily related to the company’s voluntary buyout program for eligible U.S. officers and managing directors.
Frederick W. Smith, Chairman, President and CEO, said he was “very proud of the FedEx team for delivering outstanding service to customers during the company’s third quarter despite severe weather.” Historically severe winter weather significantly affected our third-quarter earnings, said Mr. Smith. “On days when the weather was closer to normal seasonal conditions, our volumes were solid and service levels were high. The strategy of maintaining separate express and ground networks with multiple hubs proved to be an especially important advantage for our package customers during this quarter’s severe weather and peak shipping.”
Outlook
The $1.6 billion profit improvement plan at FedEx Express remains on track despite the near-term impact of weather. The accelerated stock repurchase program initiated in January reflects FedEx’ confidence in achieving its financial goals.
FedEx Express Segment
For the third quarter, the FedEx Express segment reported revenues of $6.67 billion, down slightly from last year’s $6.70 billion. Revenue decreased slightly due to lower freight revenue, lower fuel surcharges and the impact from weather. U.S. domestic revenue per package was up slightly, as higher rates and weight per package were mostly offset by lower fuel surcharges. U.S. domestic average daily package volume increased slightly.
International export revenue per package increased 1 per cent, as higher base yields were partially offset by lower fuel surcharges, unfavorable exchange rates, and the ongoing demand shift toward lower-yielding international services. FedEx International Priority® (IP) average daily volume declined 5 per cent due to a drop in lower-yielding distribution services. IP average daily volume, excluding these distribution services, was essentially flat. FedEx International Economy® average daily volume grew 8 per cent.
Operating results increased year over year despite the impact of weather, which reduced operating income by an estimated $70 million compared to the prior year. Benefiting the quarter were higher base package yields, lower pension expense, one additional operating day and ongoing cost reduction activities, partially offset by lower freight revenue and the negative net impact of fuel.
FedEx Ground Segment
For the third quarter, the FedEx Ground segment reported revenues of $3.03 billion, up 10 per cent from last years $2.75 billion. FedEx Ground average daily volume grew 8 per cent in the third quarter, as growth in both FedEx Home Delivery and business to business services was driven by market share gains. Revenue per package increased 1 per cent due to rate increases and higher residential surcharges, partially offset by lower fuel surcharges. FedEx SmartPost average daily volume increased 2 per cent. FedEx SmartPost net revenue per package increased 3 per cent due to rate increases and service mix, partially offset by higher postage rates and lower fuel surcharges.
Operating income increased due to higher volume and revenue per package. The third quarter was favorably impacted by Cyber Week, which was in the second quarter last year, as well as one additional operating day. These positive factors were significantly offset by an estimated $40 million year-over-year impact on operating income from weather, as well as increased network expansion costs and the negative net impact of fuel.
FedEx Freight Segment
For the third quarter, the FedEx Freight segment reported revenues of $1.35 billion, up 9 per cent from last years $1.24 billion. Less-than-truckload (LTL) average daily shipments and weight per shipment increased 7 per cent and 2 per cent, respectively. LTL revenue per hundredweight decreased 2 per cent primarily due to changes in shipment characteristics and lower fuel surcharges.
Operating income improved as the positive impacts of higher shipment volumes, heavier average weight per shipment, greater utilization of rail in the Economy service offering and one additional business day were partially offset by the impact of weather.
Effective March 31, 2014, FedEx Freight will increase certain U.S. and other shipping rates by an average of 3.9 per cent.