FedEx 4Q Earnings Rise 33% on Resurgence of LTL Unit

FedEx Corp.’s earnings jumped 33% in its fiscal fourth quarter, led by a return to profitability at its less-than-truckload FedEx Freight unit after six consecutive quarters of losses.

FedEx, Memphis, Tenn., on June 22 reported net income of $558 million for its quarter ended May 31. FedEx Freight delivered a $42 million profit before taxes and interest that was attributed to a 13% increase in revenue per 100 pounds of freight carried and was the highest in nearly three years.

Helped by a stronger economy and improved demand, FedEx also reported higher quarterly profit at its express and ground units and said profits next year could be as much as 50% higher than the year ended May 31.

Revenue for the corporation climbed 12% to $10.55 billion.

Freight “returned to profitability in the quarter due primarily to the higher LTL yield,” the company stated in its earnings announcement. “Strong growth and yield efficiencies resulting from the combination of the FedEx Freight and FedEx National LTL operations are expected to drive a substantial improvement in operating results in fiscal 2012.”

The Freight segment last turned a profit in the first quarter of fiscal 2010, which was just $2 million.

The last time the LTL results were better than the fourth quarter was in the fiscal first quarter of 2009, when operating income was $89 million.

The freight unit’s operating ratio was 96.8, or 6.1 percentage points better than the 102.9 in the fourth quarter of the 2010 fiscal year, when the loss was $36 million.

FedEx Freight’s focus on improving profit margins was illustrated by the fact that shipments per day fell 8% at the same time that revenue per 100 pounds of freight climbed 13%.

Freight revenue rose 6% to $1.31 billion from $1.23 billion. That revenue level was the highest since the $1.35 billion that also was achieved in the first quarter of 2009.

The latest FedEx Freight revenue totals continued to lead LTL carriers. For its fiscal year, the unit’s revenue was $4.91 billion. YRC Worldwide was second-best, with LTL revenue in 2010 of $4.33 billion.

FedEx, which ranks No. 2 on the Transport Topics Top 100 list of for-hire carriers in the United States and Canada, said that the integration of its two LTL operations had little effect on the company’s cash position. That happened because asset sales totaling $88 million effectively matched severance and other integration costs.

“Customer response has been very good,” FedEx Freight’s president, William Logue, said on a conference call, referring to the freight company’s approach to offer two options for LTL service, priority and economy. “The network is very efficient.”

“FedEx has been talking for a while on wanting to focus on yield, and you’re seeing that on all their business segments,” Kevin Sterling, an analyst with BB&T Capital Markets, told Bloomberg News June 22. The yields “will lead to strong margin improvement, which will lead to earnings growth, which is why I think their outlook was extremely positive.”

FedEx’s corporate earnings for the fiscal year were $1.45 billion, or $4.57 a share. For the 2012 fiscal year, FedEx estimated that profit would be $6.35 to $6.85 a share, or $2.02 billion to $2.18 billion.

The Express unit, responsible for about two-thirds of revenue, raised its profit before taxes and interest by 4% to $429 million and boosted revenue 13% to $6.63 billion.

The Express unit’s volume reflected the focus on yield as volume rose 2% and revenue per pound rose 10%.

The Ground unit’s profit before taxes and interest climbed to $417 million, a 31% growth rate, as revenue climbed 15% to $2.26 billion. At Ground, volume rose 10% and revenue per package also was higher at 7%.

The $4.57 per-share earnings in the latest fiscal year were reduced by 26 cents a share for costs related to integration of FedEx Freight’s national and regional operations and 7 cents a share that was put in reserve for a legal case the company didn’t describe in detail.