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FedEx 4Q profit rises on growth in ground shipping

| Wednesday, June 18, 2014, 10:45 a.m.

Profitable growth at FedEx Ground in Moon, driven by an 8 percent increase in shipments and higher revenue per package, lifted parent FedEx Corp. to better-than-expected quarterly net income.

FedEx on Wednesday said its ground-shipping business benefited from gains in electronic commerce, which helped offset slower growth in FedEx Express, the company's air-shipping business, which accounts for more than half of total revenue. FedEx Freight, its ship-by-truck unit, also performed well.

FedEx Ground's services include home delivery for consumers and FedEx SmartPost, a low-cost option for businesses that want to offer free shipping, with the Postal Service delivering the final mile. FedEx Ground employs 3,000 in the Pittsburgh region.

The Memphis-based package-delivery company said on Wednesday it earned $730 million in its fourth quarter ended May 31, compared with $303 million a year ago, when write-downs from a profit improvement initiative reduced results. Earnings of $2.46 per share beat Wall Street's forecast by a dime.

Revenue rose 3.5 percent to $11.84 billion. Analysts expected $11.66 billion.

“We believe we are well positioned for a strong fiscal 2015,” said Chairman and CEO Fred Smith.

FedEx forecast earnings of between $8.50 and $9 per share in the new fiscal year, which ends in May 2015, in line with analysts' average expectation of $8.74.

The company's shares jumped $8.64, or 6 percent, to $148.95.

Beginning in January, FedEx Ground will start changing more for larger but light packages that take up delivery space and add costs. The change, called “dimensional weight pricing,” has been used by FedEx Ground on packages more than three cubic feet in size for several years. It was already used on priority shipments by FedEx Express.

Rival United Parcel Service Co. said on Tuesday that it would do the same for ground shipments.

“What we're really doing is bringing consistency to the Ground and Express segments,” Chief Financial Officer Alan Graf said on a conference call. “We announced this change several months ahead ... to give us plenty of time to work with customers to refine their packaging specs.”

Analyst William Green of Morgan Stanley said FedEx previously talked about dimensional pricing adding $100 million to revenue.

But Mike Glenn, president of FedEx's services unit, said the impact is difficult to gauge because FedEx is helping customers design more efficient packaging. “I don't think I have to tell you if you receive any kind of packages in your home, whether they're cookies from grandma or an e-commerce package, they're not always packed efficiently.”

FedEx's results improved compared to the previous quarter, when it said the severe winter disrupted operations and reduced shipping volume. CEO Smith called it “the toughest winter in which FedEx has ever operated,” cutting results for the three-months ended Feb. 28 by an estimated $125 million.

In the current quarter, FedEx Ground's operating income grew 5 percent to $586 million compared with last year, despite expansion costs and an 8 percent decline in volume at SmartPost. Revenue was $3.01 billion, up 8 percent from a year ago. Revenue per package rose 2 percent, from rate increases and residential surcharges, partially offset by lower fuel surcharges.

Henry Maier, CEO of the ground unit, said SmartPost's volume was cut when one large, unnamed customer moved its business directly to the Postal Service. “If you exclude that one customer, SmartPost grew roughly 14.5 percent over the year. That's still pretty good business,” he said.

FedEx Express, the company's largest unit, had operating income of $475 million, up 3 percent from a year ago, on revenue of $7.0 billion, up slightly. FedEx Freight's income was $122 million, up 51 percent from $81 million a year ago, on revenue of $1.55 billion, up 12 percent.

FedEx Express has been struggling with a decline in international priority deliveries as customers shifted to less-expensive options. But Graf said the priority business has stabilized, up 2 percent in the quarter, after a year of declines. 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. Most of the benefits will be felt in 2015 and 2016, he said.

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

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