FedEx Net Income Soars 76% on Three Divisions’ Earnings

FedEx Corp.’s net income climbed 76% in its fiscal 2012 second quarter, helped by a third consecutive profitable quarter at the freight unit and higher earnings at the ground and express businesses.

Net income rose to $497 million from $283 million, the company an-nounced on Dec. 16. Revenue rose 10% to $10.6 billion.

FedEx Freight posted operating income, which excluded interest and taxes, of $40 million, while profit on that basis reached $398 million at the Ground segment and $342 million at the Express unit.

At the freight unit, the earnings gain for the quarter that ended Nov. 30 was a turnaround from an operating loss of $91 million in the second quarter of the prior year. The fiscal 2011 period included $86 million in costs of combining the company’s two less-than-truckload networks.

William Logue, president of the unit, credited the improvement to better profit margins, which rose 4% on a year-over-year basis.

“We are very happy where we are, from a year-over-year perspective,” he said on a conference call. “We continue to focus heavily on [yield management]. As we move forward, we have great opportunities.”

Revenue per 100 pounds of freight rose 8% to $19.79, and weight per shipment was 3% higher at 1,147 pounds.

Freight unit revenue was 9% higher at $1.33 billion, and the operating ratio improved to 97.0 from 107.5, including the network combination costs, and 100.4 ex-cluding them.

On a quarter-to-quarter basis, the freight unit’s results were similar to the fiscal first quarter that ended Aug. 31. Revenue was $3 million lower, expenses fell $1 million and operating income dropped $2 million.

The theme of pricing improvement, excluding the effect of rising fuel prices, extended throughout the company.

“Our improved performance was largely a result of effective yield management programs and strong demand for FedEx Home Delivery and FedEx Smart Post services,” said Frederick Smith, corporate CEO. “With the healthy growth in online shopping this holiday season, demand is increasing for these residential delivery services.”

Rates were 6% higher on domestic package shipments and at the ground unit and 5% higher on priority international shipments. However, domestic package volume fell 4%, and freight shipments per day dropped 3%.

“These results [are] a mixed bag,” UBS analyst Rick Paterson said in an investor note. “Despite the healthy top- and bottom-line results, volumes were disappointing in the quarter. Clearly, FedEx cannot materially detach its volume growth from [the economy], which is obviously weak.”

Unlike the drop in volume at the express and freight units, package volume rose 4% at the ground unit.

Revenue at the Smart Post unit, whose results are included in the ground business, rose more than 20% to $196 million. Smart Post volume improved 17%.

In total, revenue climbed 13% to $2.34 billion at the ground unit. The operating ratio improved to 83.0 from 85.7.

The Ground unit’s operating income rose 34%.

The Express unit, which includes domestic and international packages as well as international airfreight, was hurt by weakness in Asian markets but still managed to boost operating income by 30%.

FedEx didn’t quantify the volume decline but said combined international package and freight revenue declined by $58 million, or 2%.

“FedEx Express took action during the quarter to adjust its network, particularly in Asia, as recent inventory destocking trends have impacted demand,” Alan Graf Jr., chief financial officer said on the conference call.

The changes in the airfreight market triggered a restructuring of the company’s airfreight fleet, which now includes plans to buy 26 new Boeing Co. 767 aircraft and a slowing of orders for Boeing 777 freighters.

FedEx also maintained its earlier forecast that earnings for the full fiscal year that ends May 31 could top $2.1 billion.