Federal Express 2005 Annual Report Download - page 48

FedEx Freight Segment Revenues
FedEx Freight segment revenues increased 20% in 2005 due to
year-over-year growth in average daily LTL shipments (9%) and
LTL yield (9%). Market share gains, driven in part by brand
awareness, along with a stronger economy, contributed to the
significant increase in average daily LTL shipments. LTL yield
grew during 2005, reflecting incremental fuel surcharges due to
higher fuel prices, higher rates, growth in our interregional freight
service and a stable pricing environment. The LTL fuel surcharge,
which applies to the majority of our revenue, is based on the
average of the national U.S. on-highway average prices for a gal-
lon of diesel fuel, as published by the Department of Energy.
Using this index, the approximate LTL fuel surcharge ranged as
follows for the years ended May 31:
2005 2004 2003
Low 7.60% 3.20% 2.10%
High 14.00 8.40 6.70
Average 10.90 5.30 3.50
The increase in FedEx Freight segment revenues during 2004 was
primarily due to increases in LTL yield and LTL average daily
shipments, which reflected a strengthening economy and market
share gains. LTL yield grew 6% during the year, reflecting incre-
mental fuel surcharges due to higher fuel prices, growth in our
interregional freight service and higher rates.
FedEx Freight Segment Operating Income
FedEx Freight segment operating income increased 45% in 2005
primarily due to LTL yield and shipment growth, as well as our
ability to manage costs during a period of substantial growth.
Higher fuel surcharges and productivity gains contributed to
improved operating margin in 2005 in spite of higher salaries and
employee benefits, purchased transportation and fuel costs.
Purchased transportation costs increased due to growth in our
interregional freight service, efforts to supplement our linehaul
operations and higher fuel surcharges from contract carriers.
The 26% increase in operating income at the FedEx Freight seg-
ment during 2004 was primarily attributable to LTL revenue
growth and cost management. Operating margins improved as
yield management and operational productivity gains outpaced
increased incentive compensation, fuel, insurance and claims,
pension and healthcare costs. Purchased transportation costs
increased primarily due to the growth of our interregional freight
service. Operating margin improved more than 100 basis points
in 2004 on strong revenue growth.
A project to rebrand our two regional LTL carriers under the com-
mon name “FedEx Freight” began in the fourth quarter of 2002
and was completed in 2005. Cumulative rebranding expenses
totaled $41 million ($10 million in 2005). These costs, which were
expensed as incurred, consisted primarily of incremental costs
for rebranding tractors and trailers.
FedEx Freight Segment Outlook
We expect revenue growth to continue in 2006 due to both LTL
yield improvement and LTL shipment growth. A general rate
increase and a stable industry-pricing environment are expected
to contribute to LTL yield improvement. An LTL general rate
increase of 5.6% was implemented on May 16, 2005. Our LTL
no-fee money-back guarantee (initiated in September 2003)
continues to be a differentiating feature in the marketplace. The
guarantee has been well received and we expect it to contribute
to sustained market share growth throughout 2006. We also
expect continued consolidation among LTL carriers and sus-
tained positive economic conditions to provide additional
opportunities for FedEx Freight to promote its regional service
and other freight solutions.
FEDEX KINKO’S SEGMENT
The following table shows revenues, operating expenses and
operating income and operating margin (dollars in millions) for
the year ended May 31, 2005 and for the three months ended May
31, 2005 and 2004: Year Ended Three Months Ended Percent
2005 2005 2004 Change
Revenues $2,066 $553 $ 521 6
Operating expenses:
Salaries and employee
benefits 742 189 185 2
Rentals 427 100 115 (13)
Depreciation and
amortization 138 38 33 15
Maintenance and repairs 55 19 9111
Intercompany charges 61–NM
Other operating expenses:
Supplies, including paper
and toner 305 73 69 6
Other 293 92 71 30
Total operating expenses 1,966 512 482 6
Operating income $ 100 $ 41 $39 5
Operating margin 4.8% 7.4% 7.5%
FEDEX CORPORATION
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