Federal Express 2011 Annual Report Download - page 22

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MANAGEMENT’S DISCUSSION AND ANALYSIS
Fuel costs decreased 19% in 2010 due to decreases in the average
price per gallon of fuel and fuel consumption. Based on a static
analysis of the net impact of year–over–year changes in fuel prices
compared to year–over–year changes in fuel surcharges, fuel had a
significant negative impact to operating income in 2010. This analysis
considers the estimated impact of the reduction in fuel surcharges
included in the base rates charged for FedEx Express services.
FedEx Express Segment Outlook
In 2012, we expect revenue growth at FedEx Express to be driven by
continued growth in our international services as international eco-
nomic conditions are expected to improve at a faster rate than in the
U.S. We also anticipate improvement in both domestic and interna-
tional yields through ongoing yield management initiatives.
FedEx Express segment operating income and operating margin are
expected to increase in 2012, driven by continued growth in interna-
tional package and freight services, and productivity enhancements
such as improving on–road productivity, sort efficiency and efficiencies
in our aircraft maintenance processes. We anticipate that increases in
merit pay, higher incentive compensation and increased depreciation
will dampen our earnings growth in 2012.
Capital expenditures at FedEx Express are expected to increase in 2012
driven by replacement vehicle and equipment purchases. In 2012,
capital expenditures will also include continued investments for the
new B777F and B757 aircraft. These aircraft capital expenditures are
necessary to achieve significant long–term operating savings and to
support projected long–term international volume growth.
FEDEX GROUND SEGMENT
The following tables compare revenues, operating expenses, operat-
ing expenses as a percent of revenue, operating income and operating
margin (dollars in millions) and selected package statistics (in thou-
sands, except yield amounts) for the years ended May 31:
Percent Change
2011 2010 2009
2011
2010
/2010
2009
/
Revenues:
FedEx Ground $ 7,855 $ 6,958 $ 6,670 13 4
FedEx SmartPost 630 481 377 31 28
Total revenues 8,485 7,439 7,047 14 6
Operating expenses:
Salaries and employee
benefits 1,282 1,158 1,102 11 5
Purchased transportation 3,431 2,966 2,918 16 2
Rentals 263 244 222 810
Depreciation and
amortization 337 334 337 1(1)
Fuel 12 8 9 50 (11)
Maintenance and repairs 169 166 147 213
Intercompany charges 897 795 710 13 12
Other 769 744 795 3(6)
Total operating expenses 7,160 6,415 6,240 12 3
Operating income $ 1,325 $ 1,024 $ 807 29 27
Operating margin 15.6% 13.8% 11.5% 180bp 230bp
Average daily package
volume:
FedEx Ground 3,746 3,523 3,404 63
FedEx SmartPost 1,432 1,222 827 17 48
Revenue per package (yield):
FedEx Ground $ 8.17 $ 7.73 $ 7.70 6–
FedEx SmartPost $ 1.72 $ 1.56 $ 1.81 10 (14)
Percent of Revenue
2011 2010 2009
Operating expenses:
Salaries and employee
benefits 15.1 % 15.5 % 15.6 %
Purchased transportation 40.4 39.9 41.4
Rentals 3.1 3.3 3.1
Depreciation and
amortization 4.0 4.5 4.8
Fuel 0.1 0.1 0.1
Maintenance and repairs 2.0 2.2 2.1
Intercompany charges 10.6 10.7 10.1
Other 9.1 10.0 11.3
Total operating expenses 84.4 86.2 88.5
Operating margin 15.6 % 13.8 % 11.5 %