ATW Daily News

FedEx fiscal third-quarter profit plummets 75%

Friday March 20, 2009

FedEx reported net income of $97 million for its fiscal third quarter ended Feb. 28, down 75% from a $393 million profit in the year-ago period, blaming "the continued deterioration in global economic conditions."

Chairman, President and CEO Frederick Smith said the "sharply lower" results and the "severity and expected duration of the recession require that we take additional [cost reduction] actions." He said FedEx will cut network capacity in both its Express and Freight operations, cut an unspecified number of personnel and work hours, expand previously announced pay reductions to non-US workers and generally tighten expenditures.

The company in December implemented a hiring freeze, a 7.5%-10% salary reduction for senior executives and a 5% pay cut for salaried US personnel exempt from labor contracts (Smith said his salary would be lowered by 20%). It also deferred deliveries of 15 new 777Fs by one to 18 months depending on the aircraft and suspended matching 401(k) contributions(ATW, February 2009). It said the cost-reduction measures will result in fiscal fourth quarter charges of $100 million but will reduce fiscal 2009-10 costs by approximately $1 billion. Smith emphasized that the cuts will not "impede" customer service.

Third-quarter revenue dropped 14% to $8.14 billion while expenses lowered 10% to $7.96 billion, producing operating income of $182 million, down 72% from $641 million in the year-ago period. The FedEx Express airline operation posted an 18% decline in revenue to $5.05 billion and a 12% fall in expenses to $5.01 billion, producing operating income of $45 million, down 89% from $425 million last year.

Its International Priority product, heavily dependent on air operations, saw package volume fall 13%, "with declines in every international region," FedEx said. IP revenue per package decreased 8%, hurt by lower fuel surcharges (FedEx benefited from high fuel surcharges in the fiscal second quarter) and unfavorable exchange rates. Express's US domestic package volume dipped 3% "despite the benefit of DHL exiting" the US market (ATWOnline, Nov. 11, 2008).

The company expects fiscal fourth-quarter earnings to be down at least 51% year-over-year to $0.45-$0.70 per diluted share.

by Aaron Karp

Other headlines: