Due to lackluster numbers for its fiscal third quarter, magnified by air freight overcapacity and a modal shift away from air cargo, FedEx Express will lower capacity on its Asian routes starting April 1.
The company will also “aggressively manage traffic flows to place low yielding traffic in lower-cost networks,” according to Fred Smith, chairman, president and chief executive officer of FedEx Corp.
“We are currently assessing how these actions may allow FedEx Express to retire more of its older, less-efficient aircraft,” he continued. “We remain focused on our strategic cost reduction programs, which are ramping up and on track.”
According to analysts at Cowen Securities, a capacity reduction will not ease yield pressure until the air cargo supply and demand balance becomes more stable worldwide.
Last quarter, a voluntary buyout of U.S. officers and managing directors cost FedEx $47 million, reducing its third-quarter earnings to $1.13 per diluted share. This buyout will cost the company between $450 million and $550 million in 2013.
The employee buyout program, according to officials, is the first step
toward improving efficiency and cost-structure reductions. The
profitability goal stands at $1.6 billion by the end of 2016 using
2013’s numbers as a base; 75 percent of that profitability will be
achieved by 2015.
The company reported $11 billion in revenue during the quarter, a 4-percent year-over-year rise, but an operating income that fell 28 percent to $589 million. Net income fell 31 percent compared to the same time last year to $361 million.
For the FedEx Freight segment, revenue and operating income both increased, while operating margin stood at 0.3 percent, a rise of 0.2 points. The quarter had two fewer operating days than last year’s third quarter, but less-than-truckload (LTL) yield was still up 2 percent, and average daily LTL shipments rose by 1 percent.
FedEx Express reported a 2-percent revenue increase to $6.7 billion coupled with an operating income decline of 66 percent and a decrease in operating margin of 5.3 percent.
“The Express segment has been a drag on the business for some time and we believe it is bouncing along a bottom,” Cowen analysts wrote in a recent guidance email.
FedEx Ground’s revenue was up 11 percent to $2.75 billion, and operating income increased by $2 million compared to last year. Operating margin fell by 1.8 points to 17 percent on higher transportation costs. FedEx Home Delivery and business-to-business programs helped the segment achieve a 10-percent bump in daily volumes during the quarter. - Jon Ross