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Air & Express  Reprint permission
FedEx Gains Company has strong third quarter despite war, weather, economy FedEx Ground continues to pace FedEx Corps.' earnings, leading the company to a strong third quarter, which ended Feb. 28. Defying bad weather, a pending war and a stagnant economy, FedEx increased its sales and earnings. Memphis-based FedEx reported that its third quarter produced revenue of $5.55 billion, a 10 percent year-over-year increase. Operating income increased 14 percent to $269 million, and net profit was up 23 percent to $147 million. "We believe that our company has again posted solid financial results with a 23 percent net income increase over the past year and doing so against a backdrop of significant challenges - the economy, war concerns and some of the worst weather that we have ever operated in during the winter season," FedEx Chairman Fred W. Smith said. FedEx Express continued to be the company's lowest-performing unit, but it still reported an 8 percent increase in quarterly revenue to $4.06 billion. Operating income also rose 8 percent in the quarter to $145 million. Its overall year-over-year average daily package volume was flat, with an 8 percent increase in International Priority daily volume and a 5 percent decline in U.S. Overnight Envelope daily volume. Asian exports continued to grow, resulting in an 18 percent year-over-year increase in package volume from Asia. That's on top of 27 percent Asian volume growth in the second quarter. "Traffic from China is up 35 percent, where we have a significant competitive advantage given the number of frequencies we operate compared to our competitors," Smith said. The company blamed harsh winter weather, increased fuel costs and a rise in salary and benefit payments for its performance. Despite this year's third quarter having one more day than last year's, the operating margin declined from 3.8 percent to 3.3 percent. Looking to the fourth quarter, the division hopes success will ride on the third addendum to its contract to carry mail for the U.S. Postal Service. This extension applies through May 2004, the end of FedEx's next fiscal year. Because FedEx does not release information about individual customers, its financial reports do not show how much volume or monetary gain it gets from the Postal Service contract. Federal security changes loom for air freight, changes that likely will affect FedEx and all its competitors. The Transportation Security Administration is expected to issue air cargo regulations later this year. And Congress also is working on an air cargo security bill. Separately, the U.S. Customs Service is drafting mode-specific rules for carriers to notify the agency of their cargo manifests before arriving in or departing from the United States. Smith said he does not expect the Customs rule to unduly burden FedEx's business. He said he expects the air rule to be less stringent than the already-issued maritime rule requiring 24-hour advance notification. And he said inspection rules are less of a problem for air than for containerized modes because air freight is easier to see and inspect. "The shipments, for all intents and purposes, are all visible in our industry," Smith said, noting that if TSA or Customs want to inspect them, they are welcome to do so. Lower-cost FedEx Ground continues to be the star of FedEx's show. It reported revenue of $844 million, up 26 percent. Its profit grew even more, up 58 percent to $109 million. FedEx Ground's average daily package volume grew 24 percent in the quarter. FedEx Home Delivery, which first turned a profit in the second quarter, is credited for most of that volume growth. The number of shippers using the service has more than doubled in the past year to approximately 34,000. FedEx Freight's revenue for the quarter increased 12 percent to $493 million, with a 30 percent profit increase to $26 million, despite $2 million in rebranding expenses. Volume was flat, a fact the company blamed on poor weather. For its fourth quarter, FedEx wants to sustain the double-digit growth in FedEx Ground and FedEx Home Delivery and work to expand internationally. "The rapidly growing China market validates, I believe, our early investment there," Smith said. "And we think we will continue to see that strategic decision paying off for us in the years ahead. FedEx Freight is a key part of our business portfolio as it differentiates us from the competition. And with FedEx Freight's recent expansion into Europe, it increases the supply-chain possibilities we provide our customers." During the quarter, FedEx contributed an additional $815 million to its U.S. pension plans, bringing the fiscal year's pension contributions to more than $1 billion. The company also created a new, more portable pension plan designed to attract new employees. The plan is in addition to its 401(k) savings plan.
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