10-QPeriod: Q1 FY2010

FEDEX CORP Quarterly Report for Q1 Ended Aug 31, 2009

Filed September 18, 2009For Securities:FDX

Summary

FedEx Corporation reported a significant decline in its financial performance for the first quarter of fiscal year 2010 compared to the prior year. Revenues decreased by 20%, and net income dropped by 53%, leading to diluted earnings per share of $0.58, down from $1.23. This downturn is primarily attributed to weak global economic conditions that negatively impacted both shipping volumes and yields across most of its service lines. The company also faced challenges from lower fuel surcharges due to falling fuel prices, which impacted revenue more than costs due to a pricing lag. Despite the challenging environment, FedEx has implemented various cost-reduction initiatives, including salary reductions, a hiring freeze, and network optimization. These measures helped to partially offset the negative impacts on operating income. While overall demand remains soft, the company noted positive sequential trends in volumes for FedEx Ground and FedEx Freight during the quarter, suggesting a potential stabilization of economic conditions. FedEx is also strategically investing in more fuel-efficient aircraft to support long-term growth and cost savings.

Financial Highlights

38 data points
Beta

Revenue

$8.01B

Net Income

$181.00M

2.3% Net Margin

EPS (Diluted)

$0.58

Total Assets

$23.86B

Cash & Equivalents

$1.79B

Free Cash Flow

$898.00M

Financial Statements
Beta
Revenue$8.01B
Operating Income$315.00M
Net Income$181.00M
EPS (Basic)$0.58
EPS (Diluted)$0.58
Shares Outstanding (Basic)312.00M
Shares Outstanding (Diluted)312.00M

Key Highlights

  • 1Total revenues declined by 20% to $8.009 billion in Q1 FY2010 compared to $9.970 billion in Q1 FY2009.
  • 2Operating income decreased by 50% to $315 million, with the operating margin shrinking from 6.3% to 3.9%.
  • 3Net income fell by 53% to $181 million, resulting in diluted earnings per share of $0.58, down from $1.23.
  • 4FedEx Express segment revenues and operating income saw substantial declines of 23% and 70% respectively, heavily impacted by lower volumes and yields.
  • 5FedEx Ground segment revenues decreased slightly by 2%, but operating income grew by 7% due to cost control measures and increased volume at FedEx SmartPost.
  • 6FedEx Freight segment experienced a significant 27% revenue drop and a 98% decrease in operating income, driven by reduced LTL shipments and intense pricing pressure.
  • 7The company is managing capital expenditures, with a total of $880 million in Q1 FY2010, an increase of 38% driven by aircraft investments at FedEx Express, while also planning for a total of $2.6 billion in capital expenditures for FY2010.

Frequently Asked Questions

The primary drivers were weak global economic conditions leading to reduced customer demand and lower shipping volumes, particularly in the FedEx Express and FedEx Freight segments. Additionally, lower fuel surcharges, resulting from decreased fuel prices, significantly reduced yields across most service lines. An aggressive pricing environment, especially in the LTL sector, also contributed to lower yields.

FedEx implemented several cost-reduction initiatives. These included base salary reductions for U.S. salaried personnel, suspension of 401(k) company matching contributions, a hiring freeze, network optimization (adjusting routes, idling equipment, consolidating facilities), and stringent control over discretionary spending. These actions helped mitigate the negative impact of lower revenues on operating income.

FedEx anticipates continued weakness in yields and soft demand into the second quarter of fiscal year 2010. However, they noted positive sequential trends in volumes and yields from the fourth quarter of 2009, suggesting potential economic stabilization. Cost-reduction actions are expected to provide favorable expense comparisons for the remainder of fiscal year 2010. The company expects year-over-year comparisons to improve by the second half of 2010, contingent on a modest global economic recovery and stable fuel prices.

FedEx Ground is involved in numerous legal proceedings challenging the classification of its owner-operators as independent contractors rather than employees. While FedEx Ground believes these changes will not impair its ability to operate and grow, the company acknowledges that the outcome of these matters could be material, though a precise impact cannot be estimated.