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FedEx profit up despite worst winter

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By John D. Oravecz
Wednesday, March 19, 2014, 11:45 a.m.

FedEx Ground in Moon was the biggest contributor to parent company FedEx Corp.'s third-quarter profit despite sever winter weather that disrupted operations and reduced shipping volume for the package-delivery giant.

FedEx said third-quarter net income rose about 5 percent to $378 million, or $1.23 per share, from $361 million, or $1.13 per share, a year ago. And sales rose about 3 percent to $11.3 billion. The results were below analysts expectations of a $1.45 per-share profit and revenue of $11.43 billion.

“It's been the toughest winter in which FedEx has ever operated,” Chairman and CEO Fred Smith told analysts. The weather reduced third-quarter results for the period ended Feb. 28 by an estimated $125 million. “So let's hope for spring.”

Storms disrupted operations, decreased shipping volume and increased costs, the Memphis-based company said, reducing its forecast for full-year earnings to $6.55 from $6.80 a share. It expects fourth-quarter earnings of between $2.25 and $2.50 per share.

“We continue to invest heavily in the growing FedEx Ground and FedEx SmartPost businesses,” said Chief Financial Officer Alan Graf. 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.

Henry J. Maier, CEO of FedEx Ground, said the unit worked through 20 significant weather events in the quarter. “We saw more customer closures in the quarter than we have in memory,” he said. “When we didn't have good weather, we were off considerably from what we expected it to be.”

Winter's effect on the company was unprecedented, Graf said, estimating that lost business for the company's Fed Express unit was about 40,000 packages a day for the quarter and about 100,000 packages a day at FedEx Ground.

Smith said FedEx handled December deliveries, but e-commerce shipments to residential customers are a big challenge. Customers are demanding service that tells them when a package ships, to be able to redirect delivery and know when it will arrive.

“So much of the business comes in such a short period of time. And obviously it is not possible to make these enormous capital investments for two or three weeks out of the year ... ,” Smith said. “You can clearly go broke trying to deliver non-compensatory packages into people's homes.”

Graf said FedEx Ground's operating income grew 2 percent to $477 million compared with last year, despite higher fuel and expansion costs. Revenue was $3.03 billion, up 10 percent from a year ago. Fed-Ex Ground employs nearly 3,000 in the region.

FedEx Express, the company's largest unit, had operating income of $135 million, up 14 percent from a year ago, on revenue of $6.67 billion, down slightly. FedEx Freight's income was $29 million, up from $4 million a year ago, on revenue of $1.35 billion, up 9 percent.

FedEx Express has been struggling with a decline in international priority deliveries as customers shift to less-expensive options. FedEx took steps in 2012 to retire older jets, pare capacity and eliminate 3,600 jobs through buyouts as part of a $1.6 billion cost-cutting plan that remains on track, Graf said. About 75 percent have accepted voluntary buyouts and left the company, he said. Most of the benefits from the cost-cutting program will be felt in 2015 and 2016.

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

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