Hindered by Fuel and Slowing Economy, FedEx Suffers Profit Drop
By Aaron Karp, ATW Daily News | Dec. 21, 2007
FedEx reported net income for its fiscal second quarter ended Nov. 30 of US$479 million, down 6% from US$511 million last year despite a 6% boost in revenue to US$9.45 billion.
Chairman, President and CEO Frederick Smith cited "high fuel prices and weak US economic growth" in explaining the profit drop. He added that "challenging near-term economic trends" likely will affect earnings for the remainder of the fiscal year, but said long-term confidence remains high, particularly in its international express business.
Expenses rose 7% to US$8.67 billion while operating income dropped 7% to US$783 million. Operating margin of 8.3% was down 9.4% year-over-year, which the company attributed to "substantially higher" fuel costs and low demand in its signature US domestic express package business.
The FedEx Express airline segment saw revenue rise 6% to US$6.04 billion and operating income grow 5% to US$531 million from US$508 million last year. International package revenue increased 13% as daily IP package volume lifted 5% "primarily due to favorable exchange rates," FedEx said. Meanwhile, US domestic revenue per package rose just 1%. FedEx noted that its results also were affected by continued investments in China as it establishes and ramps up domestic express delivery in the vast country.
The company said it will reduce full-year capital expenditures to US$3.1 billion from a previously forecast US$3.5 billion to help offset weak economic indicators and fuel expenses.