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September 17, 2010

FedEx earns global profits, but cuts freight jobs in U.S.

The company doubles its net first-quarter income, but its freight business continues to lose money.

The Associated Press

NEW YORK - FedEx Corp. indicated Thursday that the global economic recovery remains uneven. While strength in international shipments is boosting net income, FedEx is cutting 1,700 jobs in its U.S. freight business to offset losses there.

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A customer enters a FedEx office in Doral, Fla., loaded with packages. The company, based in Memphis, Tenn., reported Thursday that it earned $1.20 per share in the fiscal first-quarter that ended in August, compared with 58 cents per share a year ago.

The Associated Press

The world's second-largest package delivery company did raise its financial outlook after it said first-quarter net income doubled. But projections for the second quarter and full year fell shy of Wall Street expectations. FedEx shares dropped more than 4 percent in afternoon trading.

International air shipments have driven FedEx's results for more than a year; revenue rose 24 percent in the quarter ended Aug. 31. But while FedEx earned $380 million in the first quarter, the FedEx Freight segment lost $16 million and has been unprofitable for four straight quarters.

The unit moves large items like refrigerators and other large appliances from factories to retailers and competes with other large trucking companies such as Arkansas Best and YRC Worldwide, which runs trucks under the Yellow, Roadway and New Penn names. Sluggish demand, combined with the heated competition in this segment of the U.S. shipping market, has forced FedEx to forgo the rate increases that are helping its other segments grow.

The freight unit, started in 2001, is separate from FedEx Ground, which trucks packages directly to consumers.

FedEx will combine its FedEx Freight and FedEx National less-than-truckload operations on Jan. 30 and close 100, or 20 percent, of its service centers. Less-than-truckload shippers take goods from many different manufacturers and consolidate them into a single truck for delivery.

The 1,700 job cuts represent about 5 percent of the freight division's workers. FedEx says the move will ensure the freight business is profitable next year. Overall, FedEx has about 280,000 employees.

For the current quarter that ends in November, FedEx expects to earn $1.15 to $1.35 per share. Analysts were expecting $1.36 per share.

 

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