FedEx reports very solid fiscal first quarter earnings numbers

Memphis-based global freight transportation and logistics services provider FedEx posted solid fiscal first quarter earnings results late yesterday.

Revenue—at $19.3 billion—was up 13% annually, and operating income—at $1.59 billion—headed up 63%. The company’s quarterly net income on an adjusted basis—at $1.25 billion—outpaced the $745 million recorded for the same quarter last year. Adjusted earnings per share—at $4.87—outpaced the $3.05 per share, from a year ago, and topped Wall Street expectations, of $2.54 per share. 

FedEx attributed the quarterly operating results gains to volume growth in FedEx International Priority and U.S. domestic residential services, as well as yield improvement at FedEx Ground and FedEx Freight and also one additional operating weekday. But those gains came with a caveat, the company said, in that they were offset by costs to support strong demand levels and also to expand services, variable compensation expenses, and costs related to COVID-19.

“At FedEx, keeping the world connected in good times and during periods of great need is who we are and what we do every day,” said FedEx Chairman and CEO Fred Smith in a statement. “With safety as our first priority, we have worked tirelessly to keep the world's industrial, healthcare and at-home supply chains flowing during the pandemic. Detailed planning is under way at FedEx to distribute vaccines at scale worldwide once approved. Our earnings growth underscores the importance of our business initiatives and investments over the last several years. In many ways, the world has accelerated to meet our strategies and we remain very confident in the future of FedEx.”

FedEx Express revenue rose 8% annually, to $9.647 billion, with operating income, at $710 million, climbing 149% annually. FedEx Ground revenue, at $7.040 billion, saw a 36% annual increase, with the segment’s operating income up 30%, to $834 million. Revenue for FedEx Freight, its less-than-truckload segment, rose 4%, to $1.826 billion, and operating income increased 41%, to $274 million.

Total quarterly package revenue, at $7.404 billion, was up 5% annually. And total U.S. package revenue, at $3.383 billion, saw a 2% annual gain, with total international export package revenue at $2.933 billion, and International Domestic up 1%, to $1.088 billion.

Total daily U.S. domestic package volume increased 8%, to 2.977 million and U.S. revenue per package, at $17.48, was off 7%. Total daily international export packages at 956,000 was up 16% with average revenue per package down 7% to $47.18.

Average weight per shipment, for FedEx Freight, at 1,067 pounds, slipped 3%, with average revenue per shipment, at $272.62, up 2%.

Assessing the state of the economy, Brie Carere, FedEx Executive Vice President, Chief Marketing and Communications Officer, said on the earnings call that the economic outlook remains uncertain due to the continued impact of COVID-19 around the world.

“Until the vaccine is available globally and the virus is contained, forecasting the economic recovery remains challenging,” she explained. “In the U.S., spending that would normally have gone into services has shifted toward goods with goods spending boosted further by pent-up demand. Retail sales are growing again year-over-year and e-commerce is booming at holiday levels and, of course, more to come on that in a moment. The service sector severely impacted by the pandemic and high unemployment rates continues to weigh on growth.

As for the impact of e-commerce over the course of the ongoing COVID-19 pandemic, Carere said that prior to the pandemic, FedEx projected that the U.S. domestic market would hit 100 million packages per day by calendar year 2026, but FedEx now projects that the U.S. domestic parcel market will hit this mark by calendar year 2023, pulling volume projections forward by three years from the previous expectations.

“E-commerce fueled substantially by this pandemic is driving the extraordinary growth,” she said. “In fact, 96% of the US growth is expected to come from e-commerce. While e-commerce as a percentage of total retail has declined from its apex in April, it remains elevated. E-commerce as a percentage of total retail for Q2 calendar year 2020 is estimated at 21% compared to 15% in Q2 calendar year 2019.”

FedEx President and Chief Operating Officer Rajesh Subramaniam addressed Peak Season on the call said that as the company enters what it expects to be a peak holiday shipping season unlike any other in the company’s history, FedEx is working closely with our customers and building solutions to enable them to succeed.

“We're also adding more than 70,000 positions in key markets across the United States,” he said. “New and expanded ground facilities planned prior to peak will provide additional strategic capacity, including six regional sortation facilities each strategically located to provide short-haul solutions for large retailers, four new automated stations, eight new or expanded large package facilities and 50 existing facilities are being expanded with additional material handling equipment and automation.”

Jerry Hempstead, president of Hempstead Consulting, told LM there was a lot to like about this earnings announcement.

“FedEx wowed all the analysts last night with their earnings announcement,” he said. “Ground, in particular, was off the charts, due to people buying online because of Covid. Ground revenue outgrew the expense to handle it, which improved margin and therefore profit. Express surprised with overnight being down 14% for envelope traffic (remember when this is what FedEx was all about). Total domestic air being up 8% is a very healthy number considering all the businesses that were closed down in this period. International Economy interestingly was down 28%, but international overall was up a healthy 9.8%. FedEx was hitting on all cylinders this quarter and now we begin the uphill ride to peak volumes.”