FedEx plans to retire older planes and take delivery of fewer new aircraft as the parcel giant expects global economic growth to dampen earnings over the next 12 months.
The world’s second-largest package transporter saw profit in the fourth quarter slip 1.4 percent year-over-year to $550 million, as an aircraft impairment charge offset increased pricing and a 3 percent rise volume. Revenue rose 3.8 percent to $11 billion, despite the number of shipments falling 1 percent in the same period.
“FedEx delivered strong earnings results for fiscal 2012 due to the outstanding performance by FedEx Ground, our new value proposition at FedEx Freight and improved yields across all transportation segments,” said FedEx Chairman, President and CEO Fred Smith.
The company said shippers’ shift toward slower transport services pulled the operating margins of the FedEx Express business from 6.5 percent to 4.1 percent. U.S. domestic volume in the FedEx First Overnight service fell 5 percent, but the revenue per package rose 6 percent, helping to boost revenue 2.6 percent year-over-year to $6.8 billion. FedEx international priority revenue per package expanded 3 percent, while global volume fell 3 percent, largely because of weakness in the Asian market.
FedEx Ground revenue rose 9 percent to $2.48 billion from the same period a year ago. Volume jumped 3 percent, driven by growth in FedEx Home Delivery and business-to-business service, and revenue per package expanded 5 percent in the same period. The rising popularity of e-commerce boosted FedEx Smart Post volume up 16 percent, and revenue per package increased 7 percent.
FedEx Freight, the company’s less-than-truckload segment, saw revenue climb 7 percent to $1.4 billion in the fourth quarter compared to the same period a year ago. Shipments rose 4 percent on increased customer demand, enhanced service and modest economic improvement, while revenue per package ticked up 4 percent.
“We are focused on improving margins in all businesses, although we face certain cost increases in fiscal 2013,” said FedEx Executive Vice President and Chief Financial Officer Alan B. Graf, Jr. “These headwinds include higher employee-related costs, including higher pension expenses of approximately $150 million due to a historically low discount rate on our May 31, 2012 measurement date, as well as higher depreciation costs.”
He said the company will look to cut cost and find efficiencies, and FedEx will contue “to evaluate actions to substantially improve FedEx Express margins.” FedEx expects U.S. GDP to grow 2.2 percent in the next fiscal year and global GDP to expand 2.6 percent in the same period. Capital spending is expected to shrink to $3.9 billion, as FedEx Express receives few aircraft and investment is shifted more toward “the high-margin, high-return FedEx Ground business," Graf said.