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|==Company Overview==||==Company Overview==|
|+||====Overview of Quarter ending November 30th====|
|+||FedEx considers the quarter ending November 30th as its second quarter. FedEx Corp. reported the following consolidated results for its second quarter:|
|+||* Revenue of $9.63 billion, up 12% from $8.60 billion the previous year<ref name = 2q11>[http://news.van.fedex.com/Q2FY11 FedEx Corp. Reports Second Quarter Earnings]</ref>|
|+||* Operating income of $469 million, down 18% from $571 million last year<ref name = 2q11/>|
|+||* Operating margin of 4.9%, down from 6.6% the previous year<ref name = 2q11/>|
|+||* Net income of $283 million, down 18% from $345 million a year ago<ref name = 2q11/>|
|+||While shipments and yields grew in all transportation segments, earnings were reduced by costs related to the January 30, 2011 combination of FedEx Freight and FedEx National LTL (Less than Truckload) operations, including severance costs associated with personnel reductions and non-cash asset impairment charges.<ref name = 2q11/> The reinstatement of certain employee compensation programs, and higher pension and aircraft maintenance expenses, also impacted earnings.<ref name = 2q11/> Segment analysis of business metrics follows.|
|+||For the second quarter, the FedEx Express segment reported:|
|+||* Revenue of $5.99 billion, up 13% from last year's $5.31 billion<ref name = 2q11/>|
|+||* Operating income of $264 million, down 23% from $345 million a year ago<ref name = 2q11/>|
|+||* Operating margin of 4.4%, down from 6.5% the previous year<ref name = 2q11/>|
|+||FedEx International Priority (IP) average daily package volume increased 11%, led by exports from Asia.<ref name = 2q11/> IP revenue per package grew 3% due to improved weight per package and higher fuel surcharges.<ref name = 2q11/> IP Freight pounds increased 29%, with revenue per pound up 5%.<ref name = 2q11/> U.S. domestic average daily package volume increased 3% and revenue per package grew 5% due to improved base pricing, higher fuel surcharges and improved weight per package.<ref name = 2q11/>|
|+||For the second quarter, the FedEx Ground segment reported:|
|+||* Revenue of $2.08 billion, up 13% from last year's $1.84 billion<ref name = 2q11/>|
|+||* Operating income of $296 million, up 24% from $238 million a year ago<ref name = 2q11/>|
|+||* Operating margin of 14.3%, up from 13.0% the previous year<ref name = 2q11/>|
|+||FedEx Ground average daily package volume grew 7% in the second quarter driven by increases in the business-to-business market and FedEx Home Delivery.<ref name = 2q11/> Yield increased 5% primarily due to higher fuel surcharges and rate increases.<ref name = 2q11/> FedEx SmartPost average daily volume increased 17% due to growth in e-commerce, gains in market share and the introduction of new service offerings.<ref name = 2q11/> FedEx SmartPost yield increased 10% primarily due to lower postage costs as a result of increased deliveries to U.S. Postal Service final destination facilities and increased fuel surcharges.<ref name = 2q11/>|
|+||For the second quarter, the FedEx Freight segment reported:|
|+||* Revenue of $1.22 billion, up 14% from last year's $1.07 billion<ref name = 2q11/>|
|+||* Operating loss of $91 million, compared with an operating loss of $12 million a year ago<ref name = 2q11/>|
|+||* Operating margin of (7.5%), compared with (1.1%) the previous year<ref name = 2q11/>|
|+||Less-than-truckload (LTL) average daily shipments increased 8%. LTL yield increased 7% year-over-year and 5% from the first quarter, primarily due to yield management programs that include targeted improvement from lower-performing accounts.<ref name = 2q11/> The operating loss in the quarter largely resulted from $86 million of costs associated with the combination of the FedEx Freight and FedEx National LTL operations. These costs primarily relate to severance expenses, asset impairment charges and accelerated depreciation expenses.<ref name = 2q11/>|
|====2010 Fourth Quarter and Year Overview====||====2010 Fourth Quarter and Year Overview====|
FedEx Corporation (NYSE: FDX) is a carrier service best known for offering express small package and document shipping. Since pioneering overnight shipping in the 1970s, FedEx has moved into slower and less expensive ground service for packages and into freight transportation. FedEx serves American business customers primarily but is moving rapidly into foreign markets. All but freight services are available to individuals through FedEx Office storefronts (1300 in the U.S. and more abroad), which also offer printing, photocopying, internet access, and other business-center services.
FedEx is the clear market leader in express shipping, with 49% market share by volume in the U.S. In ground shipping, it is only starting to establish itself in a market dominated by competitor UPS. In its freight businesses too, FedEx is gaining market share but its long-term success is uncertain. FedEx is placing a big bet on the expanded international network it is now developing. Building out an international shipping network creates high upfront costs. FedEx's success will depend on how quickly it can attract customers to this expanded network.
FedEx's profits are highly cyclical; they depend on the strength of the U.S. and world economies because economic health is a key determinant of package volumes. Package volumes and economic strength are so tightly correlated that economists will study package volume data from companies like FedEx as an indicator of whether economic activity is slowing or heating up.
FedEx considers the quarter ending November 30th as its second quarter. FedEx Corp. reported the following consolidated results for its second quarter:
While shipments and yields grew in all transportation segments, earnings were reduced by costs related to the January 30, 2011 combination of FedEx Freight and FedEx National LTL (Less than Truckload) operations, including severance costs associated with personnel reductions and non-cash asset impairment charges. The reinstatement of certain employee compensation programs, and higher pension and aircraft maintenance expenses, also impacted earnings. Segment analysis of business metrics follows.
FedEx Express: For the second quarter, the FedEx Express segment reported:
FedEx International Priority (IP) average daily package volume increased 11%, led by exports from Asia. IP revenue per package grew 3% due to improved weight per package and higher fuel surcharges. IP Freight pounds increased 29%, with revenue per pound up 5%. U.S. domestic average daily package volume increased 3% and revenue per package grew 5% due to improved base pricing, higher fuel surcharges and improved weight per package.
FedEx Ground For the second quarter, the FedEx Ground segment reported:
FedEx Ground average daily package volume grew 7% in the second quarter driven by increases in the business-to-business market and FedEx Home Delivery. Yield increased 5% primarily due to higher fuel surcharges and rate increases. FedEx SmartPost average daily volume increased 17% due to growth in e-commerce, gains in market share and the introduction of new service offerings. FedEx SmartPost yield increased 10% primarily due to lower postage costs as a result of increased deliveries to U.S. Postal Service final destination facilities and increased fuel surcharges.
FedEx Freight For the second quarter, the FedEx Freight segment reported:
Less-than-truckload (LTL) average daily shipments increased 8%. LTL yield increased 7% year-over-year and 5% from the first quarter, primarily due to yield management programs that include targeted improvement from lower-performing accounts. The operating loss in the quarter largely resulted from $86 million of costs associated with the combination of the FedEx Freight and FedEx National LTL operations. These costs primarily relate to severance expenses, asset impairment charges and accelerated depreciation expenses.
FedEx's fiscal year begins on June 1st and ends on May 1st. FedEx Corp. reported the following results for the fourth quarter:
Earnings increased as a result of stronger shipment growth in international express and continued growth at FedEx Ground. FedEx delivered strong results in the fourth quarter mainly due to simple growth in package volume. Two of the three main FedEx operating segments had positive operating margins, up from one since year ago fourth quarter. FedEx is able to charge higher prices to increase operating margins because there is higher demand for shipping associated with post-recessionary levels.
Full Year Overview:'
For the whole year, revenues have continued its decline that began in 2008. Since 2008, total revenue has decreased by $3.2 billion amount due to less consumer demand brought forth by the recession. However, this decline is slowing since revenues for 2010 is down only by 2.1% since 2009, while being down 8.5% since 2008. However, 2010's operating income of $1.998 billion is 167% more than 2009's $0.747 billion and is only $77 million less than 2008's pre-recessionary levels. FedEx has increased their prices based on increase in demand, improving operating margin to 5.8%, even more than the pre-recessionary level of 5.5%.
Revenue for 2010 was $34.73 billion, down from 2009's $35,497 billion. Revenues decreased 2% during 2010 primarily due to yield decreases at FedEx Express and the FedEx Freight LTL Group as a result of lower fuel surcharges and a continued competitive pricing environment. For FedEx Express, U.S. domestic and outbound fuel surcharge was 6.20% in 2010 versus 17.45% in 2009. On the expenses side, fuel expense decreased 18% during 2010 primarily due to decreases in the average price per gallon of fuel and fuel consumption, as FedEx lowered flight hours and improved route efficiencies.
FedEx Express invented express distribution in 1973 and remains the industry leader, providing rapid, reliable, time-definite delivery of packages and freight to more than 220 countries and territories through one integrated global network. FedEx Express employs approximately 141,000 employees and has approximately 59,000 drop-off locations (including FedEx Office centers), 664 aircraft and approximately 49,000 vehicles and trailers in its integrated global network. It earned $21.555 billion in 2010. 
FedEx Express segment revenues decreased 4% in 2010 due to lower yields primarily driven by a decrease in fuel surcharges. Yield decreases during 2010 were partially offset by increased international package volume, particularly from Asia, international freight volume and U.S. domestic package volume due to improved global economic conditions. Approximately 44% of all FedEx Express package revenues are from international shipments.
FedEx Ground serves customers in the North American small-package market, focusing on business and residential delivery of packages weighing up to 150 pounds. Ground service is provided to 100% of the continental United States and Canada population and overnight service of up to 400 miles to nearly 100% of the continental United States population. FedEx Ground operates a multiple hub-and-spoke sorting and distribution system consisting of 520 facilities, including 32 hubs, in the U.S. and Canada. FedEx Ground conducts its operations primarily with approximately 26,300 owner-operated vehicles and 30,400 company-owned trailers. It earned $7.439 billion in 2010.
FedEx Ground segment revenues increased 6% during 2010 due to volume growth. FedEx Ground average daily volume increased 3% during 2010 due to continued growth in our commercial business and our FedEx Home Delivery service. The slight yield improvement at FedEx Ground during 2010 was primarily due to higher base rates and increased extra service revenue, but was mostly offset by higher customer discounts and lower fuel surcharges. FedEx SmartPost, its high-volume low-weight parcel service part of the ground segment, grew 48% in terms of volume during 2010 primarily as a result of market share gains, while yields decreased 14% during 2010 due to changes in customer and service mix.
FedEx Freight provides less-than-truckload (LTL) freight services through its FedEx Freight businesses (regional LTL freight services) and its FedEx National LTL business (long-haul LTL freight services). Forged in 2001 after FedEx acquired LTL carrier American Freightways, FedEx Freight is a new but promising business. It earned $4.321 billion in revenues in 2010.
FedEx Freight segment revenues decreased 2% during 2010 due to lower LTL yield and the merger of Caribbean Transportation Services into FedEx Express.  LTL yield decreased 10% during 2010 due to a continuing highly competitive LTL freight market, resulting from excess capacity and lower fuel surcharges. Discounted pricing drove an increase in average daily LTL shipments of 11% during 2010.
FedEx Office (formerly FedEx Kinko's) owns and operates a chain of more than 1,700 storefront business centers around the world. FedEx Services locations offer customers internet access, teleconference facilities, photocopying, printing and FedEx shipping services. The segment was created in 2004 when FedEx acquired the Kinko's chain for $2.4 billion. The segment earned $1.770 billion in 2010. FedEx Services segment revenues, which reflect the operations of only Kinko's as of September 1, 2009, decreased 10% during 2010 due to decreased office demands.
Retirement plans cost in 2011 is expected to increase significantly. FedEx expects its earnings growth in 2011 to be constrained by a significant increase in pension and retiree medical expenses primarily as a result of a significantly lower discount rate at our May 31, 2010 measurement date. This increase is attributable to a decrease in the interest rate used to discount the estimated future benefit payments paid as pension.
FedEx is highly sensitive to this discount rate: A one basis point decrease (0.01%) results in $1.7 million in additional pension cost. A small percentage change will result in the write-off of a large fraction of operating income.
The House of Representative's decision to pass a reauthorization bill for the Federal Aviation Authority (FAA) in May 2009 foreshadows a potential dramatic shift in labor law that would significantly raise FedEx's salary expense if the bill is made law. Although employees of FedEx's main private competitor, UPS, are governed by the National Labor Relations Act (NLRA), FedEx's employees are subject to the Railway Labor Act. As a result, unionized FedEx employees must hold a national vote on issues regarding their union. However, if the bill passes, they will be able to hold local votes, which would give the union significantly more leverage and power, and thus, would increase labor costs by as much as 30% for FedEx.
In June 2010, Senate Commerce Committee Chairman John D. Rockefeller said the proposed legislation that would make it easier for FedEx workers to unionize has no chance of passing in Congress
Carriers use a lot of fuel. Fuel for air and ground vehicles accounted for 11.1% of FedEx's operating costs. FedEx more than compensated for this cost increase with its fuel surcharge. Fuel surcharges as a percentage of other package charges rose slightly to 14.21% from 14.15% of charges for express packages and to 2.24% from 2.02% of charges for ground packages. Fuel surcharges are largely responsible for the 5% yield (revenue per package) growth. FedEx is more vulnerable to fuel price fluctuations than competitor UPS, for which fuel costs represent only 5-7% of operating costs, largely because a greater percentage of FedEx's business is fuel-intensive express shipments. Despite the fact that FedEx has managed fuel costs well considering its exposure, the current upward shift of the price of oil has proved costly.
Among large, established parcel carriers, competition is stiff. Companies like FedEx must make enormous investments—in hubs, air and ground fleets, and tracking technology— to build the networks that make their business possible. Once networks are established however, the costs of increasing package volume (variable costs) are relatively low. This feature of their business encourages parcel carriers to compete for business on any basis available.
Price is one obvious point of competition. But it is rarely an issue in the mature U.S. parcel market. In 2004-2005, as international carrier DHL's pushed to expand its U.S. market share, some observers feared that a parcel carrier price war would ensue, reducing profits for all. In fact, prices remained quite stable, illustrating that the U.S. parcel market is mature, not highly fragmented, and unfriendly to new entrants. Carriers like FedEx are slightly more likely to compete on price in international markets, which are more fragmented than the U.S.
In its core U.S. parcel market (express and ground), FedEx has only one large competitor, United Parcel Service (UPS). The combined express and ground market breaks down as follows but FedEx has a far larger share (49% estimated) of express business and only a small share (17% estimated) of ground business. Outside of the U.S., FedEx competes with three similar carriers--UPS, DHL, TNT--and many smaller private and government carriers.
|U.S. Domestic Parcel||International/Foreign Domestic Parcel|
Yield, defined as revenue per package, is one important measure of a parcel carriers' business. FedEx's flagship company FedEx Express has an average yield of $21.72, compared to UPS Next Day Air's $21.14. It is no surprise that FedEx yields are higher than UPS's. By definition, yield reflects only average price charged per package and FedEx has long had a reputation for being more expensive than competitors.
However, yield is not a perfect measure for comparison, even price comparison. Large customers negotiate prices with carriers based on the mix of services they use and expected volumes. So individual customers may find that FedEx offers the best price for them even if it is expensive on average. Further, yield is of limited value as an indicator because it does not take projected volume growth into account. The high fixed-cost structure of the transportation business means that there is often lag time between when carriers invest in network expansions and when they see resulting revenue increases (as a result of increased volumes). Profits therefore rise and fall with volume relative to the size of the companies' networks. If one company can expect more still-unrealized returns on these investments in the coming year, their positions may not be as close as their yields suggest.