FedEx Invests for eCommerce

March 20, 2019


FedEx’s latest quarterly earnings were a bit underwhelming. Despite overall revenue and operating income growth, the Express division continued to be a concerned and surprisingly a drop in operating income for the Ground division left folks scratching their heads. For the quarter, the Ground division reported a 9% increase in revenue, $5.26 billion, but operating income declined 6% to $577 million. According to FedEx, higher costs were driven in part by increased purchased transportation rates and the January launch of year-round, six-day-per-week operations negatively impacted the division. We’re assuming the majority of the need for purchased transportation was during the 2018 peak holiday season. If so, market rates were indeed high due in part to heavy transportation demand ahead of the anticipated increase in Chinese import tariffs that were to be effective January 1 but have since has been delayed. UPS may have been protected a bit better from this occurrence because of their Coyote Logistics acquisition a few years ago. Faced with increased purchase transportation costs of their own, UPS acquired Coyote which has proven to be a valuable service offering for not only UPS but to customers as well. Speaking of the 2018 peak holiday season, FedEx’s current COO, Raj Subramaniam told> the Commercial Appeal in January, 2018 saw “yet another record peak season for FedEx” that featured “record service levels.” But on the recent quarterly earnings call, Mr. Subramaniam observed that the peak holiday season was ‘muted’. Despite the season being described as ‘muted’, Ground reported a 6.2% increase in volumes for the December – February quarter. A nice volume increase along with an increase in revenue per package of $8.87 for the recent quarter compared to $8.64 for the same period the previous year. Rate increases are definitely helping the company as it continues to invest in IT solutions that improve transit times for shippers. As mentioned previously, the Express division continues to report disappointing figures. Once again FedEx noted the slowdown in global trade as a major factor. The TNT integration continues and FedEx reminded those on the earnings call that when they acquired TNT they said at that time that it would take about four years to integrate. FedEx Freight, the third major division, had a good quarter despite bad weather, which also had an impact on Express, and according to Mr. Smith was under reported in the press because of the tariffs and government shutdown. Regardless, revenue increased 8% to $1.75 billion and operating income increased 98% to $97 million. Lastly, ecommerce initiatives were mentioned a great deal during the call. A special emphasis is being placed on this, hence the move towards a six-day-per-week operation, the introduction of FedEx Extra Hours and the introduction of their delivery robot. We also found out on the call that FedEx actually likes large packages and wants more please! Indeed, in early March, the company opened its first facility devoted to large packages in Savannah. As for Amazon, FedEx remains in denial and emphasized that Amazon is not a threat to FedEx. We’ll see about that as the year progresses.

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FedEx Invests for eCommerce

March 20, 2019


FedEx’s latest quarterly earnings were a bit underwhelming. Despite overall revenue and operating income growth, the Express division continued to be a concerned and surprisingly a drop in operating income for the Ground division left folks scratching their heads. For the quarter, the Ground division reported a 9% increase in revenue, $5.26 billion, but operating income declined 6% to $577 million. According to FedEx, higher costs were driven in part by increased purchased transportation rates and the January launch of year-round, six-day-per-week operations negatively impacted the division. We’re assuming the majority of the need for purchased transportation was during the 2018 peak holiday season. If so, market rates were indeed high due in part to heavy transportation demand ahead of the anticipated increase in Chinese import tariffs that were to be effective January 1 but have since has been delayed. UPS may have been protected a bit better from this occurrence because of their Coyote Logistics acquisition a few years ago. Faced with increased purchase transportation costs of their own, UPS acquired Coyote which has proven to be a valuable service offering for not only UPS but to customers as well. Speaking of the 2018 peak holiday season, FedEx’s current COO, Raj Subramaniam told> the Commercial Appeal in January, 2018 saw “yet another record peak season for FedEx” that featured “record service levels.” But on the recent quarterly earnings call, Mr. Subramaniam observed that the peak holiday season was ‘muted’. Despite the season being described as ‘muted’, Ground reported a 6.2% increase in volumes for the December – February quarter. A nice volume increase along with an increase in revenue per package of $8.87 for the recent quarter compared to $8.64 for the same period the previous year. Rate increases are definitely helping the company as it continues to invest in IT solutions that improve transit times for shippers. As mentioned previously, the Express division continues to report disappointing figures. Once again FedEx noted the slowdown in global trade as a major factor. The TNT integration continues and FedEx reminded those on the earnings call that when they acquired TNT they said at that time that it would take about four years to integrate. FedEx Freight, the third major division, had a good quarter despite bad weather, which also had an impact on Express, and according to Mr. Smith was under reported in the press because of the tariffs and government shutdown. Regardless, revenue increased 8% to $1.75 billion and operating income increased 98% to $97 million. Lastly, ecommerce initiatives were mentioned a great deal during the call. A special emphasis is being placed on this, hence the move towards a six-day-per-week operation, the introduction of FedEx Extra Hours and the introduction of their delivery robot. We also found out on the call that FedEx actually likes large packages and wants more please! Indeed, in early March, the company opened its first facility devoted to large packages in Savannah. As for Amazon, FedEx remains in denial and emphasized that Amazon is not a threat to FedEx. We’ll see about that as the year progresses.

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