FedEx posts higher earnings; cuts costs
Despite higher earnings CEO Fred Smith will take a 20% pay cut, while other executives will see their salaries reduced and the company will freeze its 401(k) match program.
NEW YORK (CNNMoney.com) -- FedEx reported higher quarterly earnings and revenue, but said Thursday that it has been challenged by poor economic conditions during the second quarter ending November 30th.
FedEx reported net income of $493 million, or earnings per share of $1.58, just beating analyst's expectations of $1.57, according to Thomson Reuters. That's up from income of $479 million and earnings per share of $1.54 for the second quarter last year.
The bump in earnings can be attributed to the recent drop in fuel costs, said David G. Ross, Vice President of Transportation & Logistics Equity Research for Stifel Nicolaus & Company Inc., (SF) which counts FedEx as a client.
"The fuel market has been very volatile on the up side as well as the down," Ross said. "The reason for the 1% increase this quarter is because fuel surcharges are down significantly, but when that benefit goes away it's going to catch up with them."
The company will not offer third-quarter guidance due to the extreme economic uncertainty, and said it anticipates more tough times ahead.
The shipping outfit also announced a raft of cost cutting measures.
"Our financial performance is increasingly being challenged by some of the worst economic conditions in the company's 35-year operating history," said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer.
Smith will take a 20% cut in salary, while senior executive salaries will be reduced by 7.5% to 10%. FedEx also suspended its 401(k) company matching contributions for one year.
That company has already implemented a hiring freeze, a reduction in labor hours, and announced staff cuts.
The economic climate remains uncertain for FedEx (FDX, Fortune 500), despite the fact that its rival DHL said it will drop its domestic air and ground services by Jan. 30, opening up more market share for FedEx.
Daily package volume for the FedEx Express and Ground units together was down 2% for the year.
However, revenue from the Express segment came in at $6.1 billion, up 1% from $6.04 billion last year. FedEx Ground revenue was $1.79 billion, up 5% from last year's $1.7 billion. The FedEx Freight unit saw sales drop by 3% to $1.2 billion, compared with $1.24 billion last year.
Still, CEO Smith said there are hard times ahead.
"With the decline in shipping trends during our second quarter, [we expect] that economic conditions will remain very difficult through calendar 2009," he said in a written statement. 
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