FedEx Net Income Surges 33 Percent; Annual Earnings Outlook Raised

Business Wire, Dec 21, 2005

MEMPHIS, Tenn. -- FedEx Corporation (NYSE: FDX) today reported earnings of $1.53 per diluted share for the second quarter ended November 30, compared to $1.15 per diluted share a year ago, an increase of 33%.

E[acute accent]FedEx Corp. reported the following consolidated results for the second quarter:

E[acute accent]--Revenue of $8.09 billion, up 10% from $7.33 billion the previous year

E[acute accent]--Operating income of $790 million, up 32% from $600 million a year ago

E[acute accent]--Operating margin of 9.8%, up from last year's 8.2%

E[acute accent]--Net income of $471 million, up 33% from $354 million the previous year

E[acute accent]"Customer demand for our broad portfolio of transportation services, a disciplined pricing approach by FedEx and strong productivity gains led to a sharp improvement in our operating margins," said Frederick W. Smith, chairman, president and chief executive officer. "FedEx is also benefiting from solid economic growth year over year in the U.S. and Asian economies, which we expect to continue in 2006." E[acute accent]Last year's second quarter included two one-time items which negatively affected earnings by a net $0.06 per share: A one-time charge of $48 million or $0.10 per diluted share related to the company's claim for compensation under the Air Transportation Safety and System Stabilization Act, partially offset by a $0.04 per diluted share tax benefit resulting from the passage of the American Jobs Creation Act of 2004. E[acute accent]Total combined average daily package volume at FedEx Express and FedEx Ground grew 3% year over year for the quarter, led by improved international express package growth. Yield management actions in U.S. deferred services at FedEx Express to improve profitability boosted yields while resulting in lower volume. FedEx Ground volumes were weaker than expected, but strengthened in the last two weeks of November and continue to strengthen in December. The higher FedEx Ground growth trend is expected to continue in the second half of the fiscal year.

E[acute accent]Outlook

E[acute accent]FedEx expects third quarter earnings to be $1.15 to $1.30 per diluted share. The company increased its earnings guidance for the year to $5.45 to $5.70 per diluted share from its previous guidance of $5.25 to $5.50 per diluted share, which includes the net effect of a $0.15 per share lease accounting charge in the first quarter. Excluding the impact of the lease accounting charge, earnings for the year are expected to be $5.60 to $5.85 per diluted share. The capital spending forecast for fiscal 2006 remains approximately $2.5 billion. E[acute accent]"We exceeded our original forecast for the second quarter due to outstanding operational performance and the deferral of certain advertising and promotional expenses to the second half of the fiscal year," said Alan B. Graf, Jr., executive vice president and chief financial officer. "Our increased earnings guidance for the full year reflects confidence in our ability to continue executing our business strategy, manage our cost structure and leverage sustained economic growth."

E[acute accent]FedEx Express Segment

E[acute accent]For the second quarter, the FedEx Express segment reported:

E[acute accent]--Revenue of $5.37 billion, up 11% from last year's $4.83 billion

E[acute accent]--Operating income of $476 million, up 43% from $333 million a year ago

E[acute accent]--Operating margin of 8.9%, up from 6.9% the previous year

E[acute accent]FedEx International Priority (IP) revenue grew 14% for the quarter. IP average daily package volume grew 8%, due to strong growth in Asia and Europe and continuing growth in U.S. export. IP revenue per package grew 5%, primarily due to higher fuel surcharges. U.S. domestic express package revenue increased 8%, as U.S. domestic revenue per package increased 7% and U.S. domestic volume increased 1%. The increase in U.S. domestic revenue per package was mainly driven by higher fuel surcharges and an increase in average rate per pound. E[acute accent]FedEx Express operating margin improved significantly year over year, benefiting from solid growth in IP revenue and significant improvement in productivity. Also, last year's operating margin was negatively affected by the one-time charge related to the company's claim for compensation under the Air Transportation Safety and System Stabilization Act.

E[acute accent]FedEx Ground Segment

E[acute accent]For the second quarter, the FedEx Ground segment reported:

E[acute accent]--Revenue of $1.31 billion, up 11% from last year's $1.17 billion

E[acute accent]--Operating income of $163 million, up 21% from $135 million a year ago

E[acute accent]--Operating margin of 12.5%, up from 11.5% the previous year

E[acute accent]FedEx Ground average daily package volume grew 4% year over year in the second quarter. Yield improved 6% primarily due to the reintroduction of a fuel surcharge, higher extra service revenue and the impact of the January 2005 general rate increase. E[acute accent]The operating margin improvement resulted from higher yields, improved field productivity and stringent expense controls at FedEx Ground, offset in part by investments in new technology and the company's capacity expansion program. Additionally, in the previous year's second quarter FedEx Supply Chain Services recorded a $10 million charge for the termination of a vendor agreement.