MEMPHIS, Tenn. - June 23, 2005 - FedEx Corporation (NYSE: FDX) today reported earnings of $1.46 per diluted share for the fourth quarter ended May 31, compared to $1.36 per diluted share a year ago.
“Our strong performance is a result of an effective strategy of cross-selling the full portfolio of FedEx services and delivering outstanding customer service,” said Frederick W. Smith, chairman, president and chief executive officer. “Our strategy is working well and we continue to innovate to bring more value to our customers worldwide. We see continued steady economic growth, both in the U.S. and in international markets, across many sectors. As we enter fiscal 2006, we are highly optimistic about the business and expect to achieve double-digit earnings growth.”
Fourth Quarter Results
FedEx Corp. reported the following consolidated results for the fourth quarter:
- Revenue of $7.72 billion, up 10% from $7.04 billion the previous year
- Operating income of $740 million, up 8% from $685 million a year ago
- Operating margin of 9.6%, down from 9.7% the previous year
- Net income of $448 million, up 9% from last year’s $412 million
Operating margin during the fourth quarter was negatively impacted by costs associated with the start-up of a new westbound around-the-world flight in support of future international growth at FedEx Express.
Total combined average daily package volume at FedEx Express and FedEx Ground grew approximately 6% year over year for the quarter, due to continued growth in international express, ground and U.S. domestic express shipments.
Full Year Results
FedEx Corp. reported the following consolidated results for the full year:
- Revenue of $29.4 billion, up 19% from $24.7 billion the previous year
- Operating income of $2.47 billion, up 72% from $1.44 billion a year ago
- Operating margin of 8.4%, up from 5.8% the previous year
- Net income of $1.45 billion, up 73% from last year’s $838 million
- Earnings per share of $4.72, up 71% from $2.76 per share the previous year
Fiscal 2005 revenues included $2.07 billion from FedEx Kinko’s compared to $621 million last year. FedEx Kinko’s was acquired in late fiscal 2004. Fiscal 2005 includes a $48 million or $0.10 per diluted share one-time charge related to the Air Transportation Safety and System Stabilization Act, partially offset by a $0.04 per diluted share tax benefit resulting from the passage of the American Jobs Creation Act of 2004. Fiscal 2004 included $435 million or $0.89 per diluted share of business realignment expenses associated with voluntary early retirement and severance programs and $0.12 per diluted share from tax benefits.
Cash flow provided by operations improved for 2005 as well. Combined with available cash balances, cash flow from operations was sufficient to fund capital expenditures for business growth and repay approximately $790 million of debt. Capital spending in fiscal 2005 was $2.2 billion. In addition, the quarterly dividend was increased $0.01 to $0.08 per share in the most recent dividend declaration.
“During fiscal 2005, we made significant progress in our financial goals of improving margins, operating cash flows and returns for our shareowners,” said Alan B. Graf, Jr., executive vice president and chief financial officer.
Outlook
FedEx expects earnings to be $1.10 to $1.25 per diluted share in the first quarter of fiscal 2006. This earnings guidance reflects the recent escalation in jet fuel prices which are expected to remain elevated during the quarter. In addition, the earnings guidance reflects the timing lag associated with the Express fuel surcharge, continued startup expenses related to the westbound around-the-world flight and minimal U.S. domestic base yield growth in the company’s package services due to a competitive pricing environment.
Earnings for the year are expected to be $5.20 to $5.45 per diluted share, with the company benefiting from growth in FedEx International Priority®, FedEx Ground and FedEx Freight shipments and improving operating margins. Cash flow is expected to improve.
Capital spending for fiscal 2006 is forecast to be approximately $2.5 billion. Investments in the company’s highest margin service lines will continue as the company adds incremental international routes, deploys new productivity enhancing technologies and broadens the size of its aircraft fleet and sortation capacity to meet future growth.
FedEx Express Segment
For the fourth quarter, the FedEx Express segment reported:
- Revenue of $5.12 billion, up 9% from last year’s $4.71 billion
- Operating income of $431 million, up 6% from $407 million a year ago
- Operating margin of 8.4%, down from 8.6% the previous year
FedEx International Priority (IP) revenue grew 14% for the quarter, as IP revenue per package grew 7%, primarily due to fuel surcharges and favorable exchange rate differences. IP average daily package volume grew 6%. U.S. domestic express package revenue increased more than 5%, as yield increased 3% and U.S. domestic average daily package volume grew 2%. The yield increase was driven by fuel surcharge revenue.
Operating margin during the fourth quarter was negatively impacted by costs associated with the start-up of a new westbound around-the-world flight in support of future international growth at FedEx Express.
FedEx Ground Segment
For the fourth quarter, the FedEx Ground segment reported:
- Revenue of $1.23 billion, up 17% from last year’s $1.06 billion
- Operating income of $173 million, up 9% from $159 million a year ago
- Operating margin of 14.0%, down from 15.1% the previous year
FedEx Ground average daily package volume grew 9% year over year in the fourth quarter. Yield improved 5% primarily due to the general rate increase, improvement in extra services revenue and the January 2005 reimplementation of a fuel surcharge.
Despite improved field productivity at FedEx Ground, the segment operating margin declined primarily because of losses at FedEx SmartPost and higher year-over-year expenses related to the company’s capacity expansion program.
FedEx Freight Segment
For the fourth quarter, the FedEx Freight segment reported:
- Revenue of $843 million, up 11% from last year’s $758 million
- Operating income of $95 million, up 19% from $80 million a year ago
- Operating margin of 11.3%, up from 10.6% the previous year
Less-than-truckload (LTL) yield improved 11% year over year, reflecting incremental fuel surcharges, growth in interregional freight service and higher rates. FedEx Freight implemented a 5.6% general rate increase effective May 16, 2005. Average daily LTL shipments increased 3% year over year.
Operating margin was up compared to the previous year due to LTL yield and volume growth.
FedEx Kinko’s Segment
For the fourth quarter, the FedEx Kinko’s segment reported:
- Revenue of $553 million, up 6% from last year’s $521 million
- Operating income of $41 million, up 5% from $39 million a year ago
- Operating margin of 7.4%, down from 7.5% the previous year
FedEx Kinko’s revenue for the quarter was driven by demand for packaging and shipping services and signs and banners, partially offset by a slight decline in copy product lines.
Operating margin continued to be negatively affected by integration and expansion activities, including costs associated with center rebranding and expansion, the centralization of FedEx Kinko’s corporate office and the launch of packaging and shipping services at its U.S. locations. Costs associated with expansion and integration activities will continue in fiscal 2006.
With the conversion of 176 former FedEx World Service Center locations to FedEx Kinko’s Ship Centers during the quarter, as well as the continued opening of new domestic and international centers, the company now has approximately 1,440 locations worldwide, up from approximately 1,200 locations a year ago.
Tax Rate
The company’s effective tax rate was approximately 37% for the fourth quarter and full year. For fiscal 2006, the effective tax rate is expected to be approximately 38%.
Corporate Overview
FedEx Corp. (NYSE: FDX) provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenues of $29 billion, the company offers integrated business applications through operating companies competing collectively and managed collaboratively, under the respected FedEx brands. Consistently ranked among the world’s most admired and trusted employers, FedEx inspires its more than 250,000 employees and contractors to remain “absolutely, positively” focused on safety, the highest ethical and professional standards and the needs of their customers and communities. For more information, visit fedex.com.
Additional information and operating data are contained in the company’s annual report, Form 10-K, Form 10-Qs and fourth quarter FY2005 Statistical Book. These materials, as well as a Webcast of the earnings release conference call to be held at 8:30 a.m. EDT on June 23, are available on the company’s Web site at www.fedex.com/us/investorrelations. A replay of the conference call Webcast will be posted on our Web site following the call.
Certain statements in this press release may be considered forward-looking statements, such as statements relating to management’s views with respect to future events and financial performance. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from historical experience or from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, any impacts on our business resulting from the duration and magnitude of the U.S. domestic economic recovery, new U.S. domestic or international government regulation, the impact from any terrorist activities or international conflicts, our ability to effectively operate, integrate and leverage the FedEx Kinko’s business, the impact of changes in fuel prices and currency exchange rates, our ability to match capacity to shifting volume levels and other factors which can be found in FedEx Corp.'s and its subsidiaries’ press releases and filings with the SEC.