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FedEx delivers on profits
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June 28, 2000: 12:04 p.m. ET
Overnight delivery leader overcomes fuel hikes to beat 4Q forecasts
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NEW YORK (CNNfn) - FedEx Corp. Wednesday posted record earnings for the latest quarter despite rising fuel costs, beating forecasts on Wall Street.
The express delivery company said it earned $245 million, or 85 cents a diluted share, in its fourth quarter ended May 31, up from $221 million, or 73 cents a share, a year earlier. Wall Street forecasts were for the Memphis, Tenn.-based company to earn 81 cents a share, according to First Call, which tracks analysts' estimates.
Sales climbed 11 percent to $4.9 billion from $4.4 billion.
 For the full fiscal year, net income climbed 9 percent to $688 million, or $2.32 a diluted share, from $631 million, or $2.10 a share, a year earlier. Revenue rose 8.8 percent to $18.3 billion from $16.8 billion.
Company officials told analysts that they felt they now have a handle on fuel costs that hit results in the company's fiscal second quarter and third quarter, using fuel surcharges and long-term fuel purchase contracts known as hedges to mitigate the impact.
"We're proud of our fourth quarter, and we're back," Alan Graf, the company's chief financial officer, told analysts during the conference call. While some freight transportation companies are starting to see signs of a slow down, Graf said that's not the case at FedEx.
"The parts of the economy we cater to are high value, and that's still growing very rapidly," he said. "All lights are green for us here in June."
Company officials say they believe earnings per share growth will be in the range of 12-to-15 percent for fiscal year 2001, although most of those gains are likely to come in the second half of the year due to some start-up costs from combining sales forces of different units, more advertising, and a push to move into the home delivery market with a lower-price deferred delivery product.
That guidance is in line with forecasts. First Call forecasts fiscal year 2001 earnings of $2.61 a share, up 13 percent from actual results in fiscal year 2000, and 14.5 percent above the previous forecast.
Investors liked the news, and FedEx (FDX: Research, Estimates) rose 1-5/8 to 38-5/8 in midday trading.
The company said a fuel surcharge on domestic shipments helped it overcome higher jet and truck fuel prices.
"The driver (for beating the estimate) is the additional revenue falling to the bottom line from the fuel surcharge," said Ed Wolfe at Bear Stearns. "It (earnings per share) is a strong number any way you look at it."
FedEx said the strongest domestic market for express package deliveries in more than a year contributed to the gains, as did increases in door-to-door international shipments.
Much of FedEx's overseas business previously came from lower-priced airport-to-airport bulk shipments, but the company said international priority shipments revenue gained 21 percent in the quarter and 18 percent for the full year.
The fuel surcharge, which rose to 4 percent from 3 percent in April, helped boost per package revenue 5.1 percent, although much of that gain was on deferred ground shipments or international shipments that are not its core business.
The expansion of the home delivery offering, announced Tuesday, comes even though the sales of that product is below company plans.
Daniel Sullivan, the chief executive of the FedEx Ground unit that oversees the product, said the geographic expansion is necessary to attract new customers to the product. Under the new plans FedEx should offer ground residential delivery by September of 2002, about a year earlier than earlier plans.
FedEx expects losses of about $50 million on the product in fiscal year 2001. Despite sales being less than expected, good cost control kept losses during the quarter below expectations as well, Sullivan said. 
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FedEx
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