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FedEx Reports Lower 2QFY14 Earnings

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FedEx Corp. (FDX) announced its second quarter (2Q) of fiscal year 2014 (FY14) earnings in pre-market hours. The package delivery service company reported earnings of $1.57 on revenues of $11.4 billion, missing on earnings by $0.07 and falling short of revenue estimates by $300 million.

The company missed consensus estimates of $1.64 per share even though earnings were up by 13% year-over-year (YoY). Revenues rose 3% over the same period. Operating income for the quarter was $827 million, a 15% increase from $718 million, while net income rose 14% to $500 million.

Operating margins were 7.3% for the quarter, an 80 basis points increase from 2QFY13. The company reported that its share repurchase program of 10 million shares announced in October had no effect on earnings for the quarter. Full year earnings, however, could see an improvement of $0.04 per share, according to company management.

Segment Performance

FedEx Express revenues were down slightly, coming in almost 0.3% lower YoY at $6.84 billion. Operating income, however, increased 42%, from $230 million to $326 million.

Freight revenues fell, as did volumes and fuel surcharges. Revenue per domestic package increased 2% while International Priority revenues increased 3% YoY. Volumes were down 5% for the international segment.

FedEx Ground revenues were up 10% to $2.85 billion while operating income increased 3% from $412 million in 2QFY13. Operating margins however, decreased by a hundred basis points.Operating income for the segment increased due to higher volume and revenue per package. Operating margins declined primarily due to this year's late start of the holiday shipping season, as Cyber Week occurred in December this year versus November last year.

The seasonal increases in volume, revenue and operating income related to Cyber Week will be realized in this year's third quarter versus the second quarter last year.

FedEx Freight reported revenues of $1.43 billion, 4% higher than $1.38 billion last year. Operating income improved 1% to $77 million while margins were down by a negligible amount. A volume increase in the company’s ‘less-than-truckload’ (LTL) business, along with higher average weight, caused an increase in revenues. Shipments were reportedly up 4%, while average weight was about 2% higher as revenue per package declined 1%.

Guidance

FedEx has increased guidance for its earnings growth rate by 8-14% over last year’s earnings from its earlier guidance of a 7-13% increase in earnings.

The management revised these estimates on the back of share repurchases that it expects to make strategically through the year.

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