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23
Jul

FedEx plans more capacity cuts

FedEx, the express parcel and logistics operator, said it would make further capacity cuts and would see only modest profitability gains in the coming year as it continued to suffer from a sluggish global economy.

The company made the projections as it published figures for the fourth quarter of its financial year, to May 31.

Overall net income for the fourth quarter – which included a $100m charge for aircraft retirements – declined 45 per cent to $303m, on revenue up 4 per cent to $11.4bn. Earnings per share fell 45 per cent to 95 cents.

In the core FedEx Express business, the company reported quarterly operating income of zero against $281m for the same period last year, on revenue up 3 per cent to $6.98bn.

Fred Smith, chief executive, said FedEx’s ground business – where net income grew 1 per cent to $1.79bn, on revenue up 10 per cent to $10.6bn – had a strong year and e-commerce traffic had boosted volumes. However, those “positive developments” had not fully offset sluggish economic growth and customers’ growing preference for cheaper services in the quarter.

FedEx has said over the past year that it is suffering from customers’ growing preference for slower, lower-margin ground transport instead of its premium air express services. It is also suffering from excess capacity in air cargo worldwide.

The company said it would further cut capacity between Asia and the US in July. It announced on June 3 that it was immediately retiring 10 aircraft and speeding up the withdrawal of another 76 as it sought to save costs.

“We are taking actions to better align our global networks with demand,” Mr Smith said. “We’re confident our business strategy is correct and we believe we’re positioning FedEx for profitable long-term growth.”

The company projected growth in adjusted earnings per share – which excludes various one-off charges – of between 7 and 13 per cent for the coming year, assuming US gross domestic product growth of 2.3 per cent and world GDP growth of 2.7 per cent.

Alan Graf, chief financial officer, said the pace of profitability improvement would be “moderate” in the coming year and would then accelerate the following year.

“Our profit improvement programme is progressing, but we continue to see the effects of customers selecting lower-rate international services,” Mr Graf said.

For the full year, group-wide net income fell 23 per cent to $1.56bn on revenues up 4 per cent to $44.3bn. Full-year earnings per share fell 23 per cent to $4.91.

Adjusted earnings per share – the company’s preferred measure, which excludes reorganisation costs and aircraft impairment charges – were $6.23, just above the $6 to $6.20 range that the company had projected.

FedEx’s shares had risen 2.92 per cent by lunchtime to $102.39.

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