Market Overview

FedEx Q3 Conference Call Earnings Highlights


FedEx (NYSE: FDX) reported its third quarter results on Wednesday, March 19, 2014.

Shares of the shipping company are down $0.74, or 0.53 percent per share to $137.64. Below are some key takeaways from its conference call.

Frederick Smith, Chairman of FedEx:

• First, I'd like to say that on behalf of more than 300,000 FedEx team members around the world, we are deeply saddened by the disappearance of the Malaysian Airlines flight and extend our deepest concerns to the families and friends of those aboard.

• In fact, it's been the toughest winter in which FedEx has ever operated. We're very proud, however, of the FedEx team for delivering outstanding service despite the hardships posed by severe weather during December's peak shipping season, when many team members volunteered to work on Christmas Day, and then in January and February when it really got bad. So let's hope for spring.

• Delivery metrics for this year's peak shipping season were among our best ever, I might note, thanks to the unique FedEx culture based on our Purple Promise to make every FedEx experience outstanding.

• Despite the near-term impact of weather, the $1.6 billion profit improvement program at FedEx Express remains on track.

• FedEx Express next month is scheduled to formally open its North Asia-Pacific regional hub at Kansai International Airport in Osaka, reaffirming our commitment to providing customers with greater access to and from markets in Asia-Pacific, the Americas, and Europe.

• In closing, I'd like to congratulate the entire FedEx team for making FORTUNE'S World's Most Admired Companies list once again. FedEx is ranked number eight overall and number one in the delivery industry.

Michael Glenn, President and Chief Executive Officer:

• We expect economic growth to look better in calendar 2014 than in calendar 2013, though growth remains moderate overall. Our U.S. GDP growth forecast is 2.6% for calendar 2014 and 3% for calendar 2015.

• Overall, FedEx had a very strong peak season and I want to thank all of our team members for delivering on the Purple Promise.

• In the Ground segment, yield per package increased 2.4% excluding the impact of fuel. The year-over-year increase was driven by product mix, rate and discount improvement, and an increase in extra service charges.

Alan Graf, Executive Vice President and CFO:

• Winter weather often negatively impacts our third quarter results, but the impact of multiple severe storms during the third quarter of 2014 was more pronounced than usual reducing earnings by an estimated $125 million versus last year.

• Our results for the third quarter also include a negative impact of fuel. These headwinds were partially offset by the benefit across all of our transportation segments of one additional operating day as well as reduced growth in salaries and benefits.

• Revenues increased 3% to $11.3 billion primarily due to higher volumes at Ground and Freight, and as Mike mentioned, yield increases at FedEx Ground.

• Turning to our Ground segment, revenues increased 10% to $3 billion due to both volume and yield growth at Ground and volume growth at SmartPost.

• In addition, revenues were negatively impacted by the severe winter weather and were partially offset by one additional operating day.

• Average daily volume at Ground increased 8%, while SmartPost volumes grew 2%. Ground segment operating income increased 2% to $477 million driven by the higher volumes and yields.

• Operating income includes the estimated $40 million year-over-year negative impact of winter weather at Ground.

• As we look at our outlook, I should remind everyone that as of February 28, 2014, approximately 75% of the 3,600 employees accepting voluntary buyouts vacated their positions. The remaining 25% will depart by May 31, 2014.

• Our expected result for the fourth quarter will continue to be constrained by the low-end of moderate growth in the global economy and continued challenges in the demand shift trends from our priority international services to our economy international services at FedEx Express.

• We project earnings to be $2.25 to $2.50 per diluted share in the fourth quarter and $6.55 to $6.80 per diluted share for fiscal 2014. We're reducing our full year earnings per share guidance largely as a result of the weather impact in Q3 and the beginning of Q4.

• Our ability to achieve the profit improvement target and other benefits from these programs is dependent upon a number of factors including the health of the global economy and future customer demand, particularly for our priority services which has not returned to the growth trends that we assumed in October 2012 when we announced the profit improvement program.

• This outlook reflects share purchases made to-date but does not include any benefit from additional share purchases. We do plan to continue purchasing shares under the program but at no specific timeframe for completion. As of February 28, we have 15.2 million shares remaining under our current authorizations.

Posted-In: Alan Graf Frederick Smith Michael GlennEarnings News Management Events


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