FedEx fiscal third quarter earnings come up short of expectations


Memphis-based freight transportation and logistics services bellwether FedEx reported mixed earnings results late yesterday.

Earnings per share, at $1.41, fell short of Wall Street expectations of $1.43, and revenue, at $17.5 billion, was up 1% annually. Net income, at $315 million, dropped 57% for the same period, and quarterly operating income, at $411 million, was down 55%.

FedEx cited various factors for the company’s decline in operating results, including a weaker global economic environment that factors in the impact of the coronavirus, higher self-insurance accruals, an unfavorable variable incentive compensation comparison, increased FedEx Ground costs from expanded service offerings, the loss of business from a large customer, a continuing mix shift to lower-yielding services, and a more competitive pricing environment. And the company also noted that these factors were partially offset by the benefits from volume growth at FedEx Ground, an additional operating weekday, increased yields at FedEx Freight and the shifting of Cyber Week into December.

“The COVID-19 pandemic is having a significant impact around the world,” saidFrederick W. Smith, FedEx Corp. chairman and chief executive officer, in a statement. “We continue to deliver for our customers and are ready to support increased demand for our International Express export services due to the significant reductions in intercontinental air capacity. While the global economic impact from recent social-distancing mandates is uncertain, we remain well positioned to assist our customers as they work to manage their supply chains and inventories. We will continue to support efforts to combat the pandemic.”

Revenue for FedEx Express slipped 1% annually to $8.924 billion, with the unit’s operating income, at $137 million, down 65%. Total quarterly package revenue was flat $7.046 billion, with U.S. package revenue up 2% to $3.451 billion, and total international export package revenue falling 1% to $2.52 billion.

Total daily U.S. domestic packages fell 2% at 3.009 million and U.S. revenue per package was up 2% at $18.21. Total daily international export packages at 835,000 were up 2%, with average revenue per package down 2% to $ 43.88.

FedEx Ground revenue rose 11% to $5.845 billion, and FedEx Freight, its less-than-truckload unit, was off 1% to $1.738 billion.

FedEx said that, due to the uncertainty caused by the coronavirus pandemic, it is suspending its 2020 fiscal earnings forecast for its consolidated and segment results. CFOAlan Grafsaid that to mitigate near-term headwinds and position the company for future earnings growth, it is attacking costs by managing capacity, retiring its oldest and least-efficient aircraft, integrating TNT Express and lower its residential delivery costs by having FedEx Ground and deliver FedEx SmartPost and certain day-definite FedEx Express packages.

What’s more, Brie Carere, EVP, FedEx Information Services, said on the company’s earnings call that the coronavirus and the efforts to contain it represent an unprecedented challenge that FedEx is evaluating and addressing daily.

“As the coronavirus broke in China, we implemented a global response plan and began managing through this crisis with the strength of our global network and unparalleled logistics expertise,” she said. “We are uniquely positioned to lead in both the relief and the recovery efforts.”

She also noted that in February, FedEx managed the influx of shipment requests to China amid limited capacity by implementing a temporary peak surcharge for U.S. outbound freight shipments and adjusting its transit commitments to China to maximize the company’s capacity utilization.

“We have also dynamically adjusted spot prices to and from China,” she explained. “Total air cargo capacity reduction to and from Mainland China from early February to early March is estimated at 40% year-over-year. Wide-body belly capacity contributed to 82% of this decline. In China, we have seen a rebound week over week since the week of March 3. With the urgent need for stock replenishment and with air capacity shortage in the market, we believe demand will stay elevated. We continue to adjust transit times and spot prices specifically for China outbound to manage demand profitably. We continue to increase the transit differentials between our premium and our economy services to encourage the use of premium service for any time-critical shipments, given the volatility in the market.”

In his comments,Raj Subramaniam, FedEx President and COO, addressed FedEx’s announcement made earlier in the quarter, which stated that FedEx Express will be contracting with FedEx Ground for the transport and delivery of select day-definite Express residential packages in the U.S., which kicked off in early March and is seeing positive results.

“This initiative, which we refer to as last mile optimization, is one element of the ongoing comprehensive transformation of our business to meet the challenges of a rapidly changing market,” he said. “In April, we'll expand last mile optimization into Cincinnati, Phoenix, Minneapolis, St. Paul, Newark, Salt Lake City, and we will continue to roll this out over the next 12 months. This is the first step in the evolution of our business model to reduce our cost, cost to serve by moving the right product in the right network at the right cost. These network changes are being enabled by investments in new technology that will allow us to make dynamic decisions about the optimal routing of any package at virtually any time within the FedEx Ground network. This will increase our efficiency, drive down our cost to serve and allow us to be more competitive and more profitable even as residential volume continues to grow.”

CFO Graf said on the call that prior to the coronavirus outbreak, FedEx commercial volumes and revenue were somewhat underperforming its December expectations, adding that the coronavirus pandemic magnified the global economic weakness.

“These factors were partially offset by residential delivery volume growth at FedEx Ground, an approximately $100 million benefit from additional operating week day, an 11% increase in revenue per hundredweight at FedEx Freight which helped drive their best third quarter operating income ever, the shifting of Cyber Week into December and the benefits of cost containment activities, which has lowered our year-to-date FedEx Services expenses allocated to our transportation segments through intercompany charges,” he said.

Jerry Hempstead, president of Hempstead Consulting, said that these quarterly results were unimpressive.

“The period reported includes December 2019, and FedEx was boasting of record volumes,” said Hempstead. “They were back slapping on the last investor call and congratulating everyone on their response to peak. Cyber week this past quarter had bled into December. The quarter had one additional working day than the same quarter last year. FedEx earned $739 million last year. and $315 million this year. Now they will blame the coronavirus for the next few quarters. I stopped counting at 100 as to the number of times Corona was mentioned on the conference call today and how many congrats there were for all the hard work of the dedicated employees in their response to the outbreak, but there was little focus on the basics of ruing a business. The shareholders should be very upset with the financial performance and the lack of clarity as to when the direction of earnings will be fixed.”

Hempstead added that on the call there very quick mention of the China surcharge but no telegraphing of what’s going to happen with Europe now that passenger flights are being taken down other than with the freight spot market to discipline the capacity.


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Jeff Berman
Jeff Berman is Group News Editor for万博2.0app下载,Modern Materials Handling, andSupply Chain Management Reviewand is a contributor to Robotics 24/7. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis.
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