FedEx profit jumps on higher package volumes, yields

The driver for an independent contractor to FedEx Corp. delivers packages in Midtown Manhattan in New York.
Victor J. Blue | Bloomberg | Getty Images
The driver for an independent contractor to FedEx Corp. delivers packages in Midtown Manhattan in New York.

FedEx delivered quarterly earnings that topped analysts' expectations on Wednesday, citing higher package volumes and yields.

The Memphis-based company reported fiscal third-quarter net profit of $580 million, or $2.01 per share, up 53 percent from $378 million, or $1.23 per share, a year earlier. Analysts had expected earnings per share for the quarter of $1.87.

Revenue rose to $11.72 billion from $11.3 billion a year ago.

Wall Street forecast FedEx would deliver revenue of $11.79 billion, according to consensus estimates from Thomson Reuters.

The company forecast full-year earnings below analysts' estimates as it looked for the global economy to grow at a lackluster rate.

Memphis-based FedEx also said fuel expenses were reduced by 30 percent due to low oil prices but its international business was hurt by falling fuel surcharges and the strong dollar.

The quarter included the company's crucial peak holiday season in the United States.

"We had a very successful peak season as volumes grew across all our segments," Chief Executive Officer Fred Smith said on a conference call with analysts.

Last month, FedEx's main rival, United Parcel Service, reported a disappointing quarterly profit due to soaring costs during peak season. Atlanta-based UPS mobilized more workers and equipment for an anticipated surge in holiday packages, but the extra business failed to materialize, forcing the company to begin applying surcharges for residential packages during this year's peak season.

FedEx delivers on profits
FedEx delivers on profits   

FedEx's operating expenses rose just 1 percent during the quarter, while UPS' expenses jumped nearly 16 percent during the fourth quarter, which also included a charge related to pensions.

FedEx said on its earnings call it expects the U.S. economy to grow at a rate of 3.1 percent in both 2015 and 2016.

The company expects full-year earnings in a range of $8.80 to $8.95 per share, which it said "assumes continued moderate global economic growth." Analysts have been looking for earnings of $8.97 for the full fiscal year ending May 31.

FedEx said package volumes in its international economy business were up 4 percent during the quarter, while daily volumes in its U.S. ground package delivery business rose 7 percent.

The company said average daily volume for its less expensive SmartPost product fell 7 percent due to reduced business from a major customer.

Revenue in the express business was flat at $6.66 billion due to lower fuel surcharges and the stronger U.S. dollar. But revenue at the U.S. ground package delivery and freight units rose 12 percent and 6 percent, respectively.

In early trading, FedEx shares were down 1.1 percent at $173.95. (Click here to track its shares.)

Although the package shipping company missed analysts' expectations last quarter, its operating margins surged to 8.5 percent from 7.3 percent a year earlier. In January, FedEx announced that it had completed its acquisition of logistics provider GENCO, in a move to tackle the evolving retail and e-commerce markets.

During the past year, FedEx stock rose nearly 28 percent to $175.

Reuters contributed to this report.