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FedEx Ground in Moon helps to boost parent FedEx Corp.'s quarterly profit

| Wednesday, Sept. 18, 2013, 11:36 a.m.

FedEx Ground in Moon contributed strongly to parent FedEx Corp.'s improved profit, and executives said on Wednesday that the delivery giant is spending heavily to expand the unit's capabilities.

Shares rose $5.57, or 5.0 percent, to $116.25, moving above a 52-week high of $113.34 set on Aug. 26.

FedEx said three-month profit rose 7 percent despite a dip at its largest unit, FedEx Express, and it will raise prices in January.

The company earned $489 million, or $1.53 a share, in the period ended Aug. 31, up from $1.45 a share a year ago. Results beat analysts' forecast of $1.50 per share. Revenue rose 2 percent to $11.02 billion, just above a forecast of $11.0 billion.

“FedEx Ground reported another outstanding quarter as average daily volume grew 11 percent,” CEO Frederick W. Smith told analysts on a conference call.

Chief Financial Officer Alan Graf said FedEx Ground's operating income grew 5 percent compared with last year, despite higher fuel costs and expansion costs. “We want to continue to invest heavily in Ground and continue to do fleet replacement at Express,” Graf said.

FedEx Ground employs nearly 3,000 in the region.

FedEx Express is struggling with a decline in international priority deliveries as customers shift to less-expensive options. FedEx took steps last year to move away from air shipments, including retiring older jets, paring capacity to Asia and eliminating 3,600 jobs through buyouts as part of a $1.7 billion cost-cutting plan.

Henry J. Maier, CEO of FedEx Ground, said 90 percent of the company's capital spending is used to expand the unit's capacity through hubs, building expansions and relocations, material handling and vehicles.

“Clearly, our volume is being driven by e-commerce,” said Maier, who became the unit's chief on June 1. “In the past year, it's grown five to six times the rate of (retail stores). We believe that we are uniquely positioned to compete in the space.”

FedEx Ground's services include home delivery for consumers and FedEx SmartPost, a low-cost option for businesses that want to offer free shipping; the Postal Service delivers the final mile.

Revenue at FedEx Ground was $2.73 billion, up from last year's $2.46 billion. Operating profit was $468 million, up 5 percent from $445 million a year ago. FedEx SmartPost reported average daily volume increased 26 percent.

Revenue at FedEx Express fell slightly to $6.61 billion from last year's $6.63 billion, but operating profit rose 14 percent to $236 million from $207 million a year ago.

“You can understand why customers are trading down,” Graf said. “They get significantly better pricing and lose just a couple of days.”

The company said FedEx Express will raise rates by an average of 3.9 percent on Jan. 6. Prices for ground shipments in 2014 will be announced.

FedEx left unchanged its forecast for the year that ends in May. It expects earnings per share to rise 7 percent to 13 percent, or $6.63 to $7.01. Analysts surveyed by FactSet expect $6.97 per share.

John D. Oravecz is a Trib Total Media staff writer. Reach him at 412-320-7882 or joravecz@tribweb.com.

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