FedEx earnings drop 53 percent, will hike shipping rates
After reporting Thursday morning that quarterly earnings have fallen by a steep 53 percent compared to last year, the shipping giant said it plans to raise rates by 5.9 percent for U.S. domestic and export shipping starting Jan. 4.
Although the company said lower fuel prices might offset some of the increase, the higher prices are sure to frustrate individuals and businesses of all sizes who rely on FedEx to send and receive goods around the world.
For its first fiscal quarter, FedEx reported net income of $181 million, or 58 cents per share, down 53 percent from last year's $384 million, on revenue of $8.01 billion, down 20 percent from $9.97 billion a year ago.
Analysts had predicted earnings of 58 cents per share, but revenue came in below their expectations of $8.24 billion.
"Revenue and profitability continued to be negatively affected year over year by the global recession," the company said in a statement. "Fuel was also a significantly negative factor in the quarter, primarily due to the substantial decline in fuel surcharges year over year. Strict cost controls and one additional operating day at each of the transportation segments benefited results."
Frederick W. Smith, FedEx's chairman, president and CEO added, "For more than a year, we have vigilantly managed costs without sacrificing service, invested wisely and minimized job losses so that FedEx will emerge a stronger, more profitable company as the global economic recovery takes hold."
The news isn't all bad for FedEx: last week, the company increased its earnings target for the current quarter -- and reiterated that stance Thursday -- as it expressed optimism and hope of "a continued modest recovery" in the worldwide economy.
"While we see signs of improvement in the economy, the year-over-year comparisons will remain very difficult for our second quarter," said Alan Graf, FedEx's chief financial officer.
The shipping giant announced the new rate hikes -- effective Jan. 4 -- simultaneously with its earnings results.
"FedEx Express package and freight rates will increase an average of 5.9 percent for U.S. and U.S. export services," the company said. "The rate increase will be partially offset by adjusting the fuel price at which the fuel surcharge begins, reducing the fuel surcharge by 2 percentage points."
FedEx shares traded over 1.5 percent lower in pre-market activity Thursday amid generally bullish sentiment across major indices.