Earnings Down At FedEx

Sep 18, 2012

Income at Memphis-based shipping giant FedEx is down $5 million, about 1 percent less than last year. The first quarter of FedEx’s fiscal year ended August 31. The company announced earnings for that quarter during a phone call this morning and lowered its projections for the rest of the year.

To explain this, FedEx founder Fred Smith pointed to the FedEx Express division. Income at FedEx Express fell 28 percent.

“While FedEx Ground and FedEx Freight [divisions] improved their profitability,” Smith said, “the slowdown in the global economy and global trade constrained revenue growth at FedEx Express and effected overall earnings.”

FedEx Express is the company’s oldest and largest division. Its inception predates Smith’s graduation from college—in a story that is now legendary in corporate America, Smith argued for the need for a reliable, overnight delivery service in a paper he wrote while attending Yale. Smith built his company on that idea.

But FedEx Express, the company’s flagship service, has struggled recently as customers switched to cheaper, but slower, options. In response, FedEx has taken express planes out of the sky, and offered some employees buyouts.

FedEx said today they will raise prices on express mail an average of 3.9 percent and they will announce even more changes to the division at a two-day investors’ meeting in October.

FedEx is considered a bellwether of the global economy because it ships everything from car parts to high-end medications and electronics all around the world. Wall Street analysts fear the glum outlook from FedEx could be just the tip of the iceberg, and many other companies’ profits may stagnate in the coming months. Key market indices including the Dow Jones industrial average, the Standard & Poor’s 500, and the Nasdaq fell soon after the announcement.