Thursday, June 23, 2011

FedEx Conference Call Transcripts

Seeking Alpha has published the full transcript of the FedEx 4th quarter and year end conference call that was held yesterday.   Anyone interested in the express, parcel, air freight or trucking markets should read the full transcript. 

Below are some excerpts that illustrate how e-commerce is changing FedEx's business.

From the opening statement of Alan Graf, Executive Vice President and CFO

Looking now at the Ground segment. Revenues climbed 15% to $2.26 billion, while operating income soared 31% to $417 million. Operating margins hit an all-time quarterly record of 18.4%. Revenue per package increased 7% primarily due to yield management actions. And package volume grew 6%, driven by increases in the business-to-business market and Home Delivery service. SmartPost average daily volumes surged 24% due to the growth in e-commerce, while yields increased 8%.

At Ground, we expect strong operating income growth due to efficiency improvements such as automated operational planning systems and improved transit time across numerous shipping lines. Segment revenue growth will be led by a continued growth in commercial, Home Delivery and SmartPost volumes resulting in additional market share gains. SmartPost is expected to continue to strengthen its market position by continuing to leverage the FedEx Ground network to insert at the optimal United States Postal Service entry point. Yields for FedEx Ground are also expected to improve as a result of our yield management initiatives and improved market penetration for our FedEx Home Delivery services.

Comments on Economic Growth from Mike Glen President of FedEx Services

There is no question that we're in a soft patch right now largely due to transitory issues such as the Japan supply chain disruptions. Obviously, we had a tremendous amount of weather impact, and the oil prices that were on the rise during the quarter. So we had some economic challenges during the quarter. We expect the GDP to accelerate through the calendar year. Our projections on a quarter-by-quarter basis for GDP in the second quarter is 1.9%; third quarter, 3.5%; and then the fourth quarter, 3.4%. So for calendar '11, we're anticipating 2.5% GDP growth; and in calendar '12, 3.0% GDP growth, with industrial production around 4.2%, 4.3%.

Comments on how SmartPost serves e-commerce customers from Mike Graf

SmartPost is a key part of our residential delivery portfolio. Obviously, there are a lot of very light weight items that move to residences that are perfect for the SmartPost network, which is why we invested in that network and have continued to invest in that network going forward. It gives us a distinct competitive advantage because it offers the right price point for the right value delivery system and complements our Home Delivery network very well. It allows us to focus the Home Delivery network on heavier packages, and many of which that require unique features that only FedEx offers such as day-definite delivery, appointment delivery and things of that nature. So it is a strong combination of services, complemented by our Express residential delivery services, which offers unique value for e-commerce customers.

Comments of Fred Smith on Consumer Spending and the peak season

It's certainly early to really start that. We have started planning and having some conversations with customers, but they have not released their forecasts. I would say the encouraging news on that front as oil prices subside, we do anticipate consumer spending to be stronger in the second half of the year. So hopefully, we'll see some of that going into peak season, but it's a bit early to make that call.

Comments of Mike Glen on Business Growth and Consumer Spending

But obviously, oil prices was a big part of that, disruptions in the Japan supply chain were a big part of that. While that is recovering, we still are seeing impacts of that and we're not back up to speed in that regard. The sentiment on the consumer side continues to be an issue. As a result, our forecast for consumer spending in the first half of this calendar year is lower than it is in the second half as we believe that, that will improve in the second half of the year. So that's been the biggest issue. Those have been the biggest 3 factors that we've been saying that have resulted in this soft patch.

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