FedEx Yields Pressure as Company Steps Up E-Commerce Focus

June 26, 2019


The latest quarterly financials reported by FedEx were not impressive as it reported flat year-over-year revenue growth and an almost $2 billion net income loss. Its Express break-up with Amazon, slip-ups with handling Huawei shipments, suing the Department of Commerce and a Wall Street Journal article that stated that the company was offering Ground rates to Express customers to fill up their airplanes weighed on investors’ minds as well as the company’s stock which fell into negative territory the day it announced earnings.

The slowing of global trade was cited as a concern as yield for International Export packages declined 5.4% from $53.84 per package to $50.93 per package despite some volume growth. Meanwhile integration of TNT Express continues. The slowness of the integration has also raised numerous questions including whether FedEx should have actually acquired the European company. Mr. Smith stressed the crippling effects of the 2017 impact and how it was underreported in the press citing an interesting Wired article that, in his opinion, was the best at describing the devastating effects of the cyberattack.

The latest update of the integration efforts includes the completion of the injection of legacy FedEx Express intra-European shipments into the TNT European road network. The company expects to be substantially complete with the operational integration by the end of fiscal year 2020.

But it is e-commerce that the FedEx team is particularly keen on. A big emphasis on being the low-cost Last Mile provider in the industry is underway as it shifts to seven day a week residential delivery, integrates FedEx SmartPost volume into standard ground operations, and enhances network capabilities around large package handling. FedEx officials expect to have large package operations in almost 40 Ground facilities prior to peak season. Most of these are existing facilities, and this approach minimizes capital expenditures and enables the company to focus on placing large package handling facilities in the strategic locations, such as near ports and railroads.

But, this shift will weigh on yields. For the quarter, ground volumes were healthy, growing at over 8%. However, yield grew only 2% year-on-year. Ground yields, although positive growth, have steadily declined during the past four quarters as the company expands its e-commerce service offerings.

Meanwhile, Express’ Deferred service reported a very healthy 24% gain in volumes but yield declined almost 7% as more e-commerce related small packages filled the airplanes. How Express will be incorporated in FedEx’s overall e-commerce strategy remains to be seen but Mr. Smith noted on the earnings call that time and distance determines what network packages go on.

The FedEx management team appeared optimistic for fiscal year 2020, describing it as one of transformation. President and COO, Raj Subramaniam said of 2020, “We continue to reinvigorate our business to capitalize on e-commerce growth and execute significant initiatives to reduce our costs to serve.” Let’s hope that by reducing their costs to serve that it is also shared with customers as well.

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FedEx Yields Pressure as Company Steps Up E-Commerce Focus

June 26, 2019


The latest quarterly financials reported by FedEx were not impressive as it reported flat year-over-year revenue growth and an almost $2 billion net income loss. Its Express break-up with Amazon, slip-ups with handling Huawei shipments, suing the Department of Commerce and a Wall Street Journal article that stated that the company was offering Ground rates to Express customers to fill up their airplanes weighed on investors’ minds as well as the company’s stock which fell into negative territory the day it announced earnings. The slowing of global trade was cited as a concern as yield for International Export packages declined 5.4% from $53.84 per package to $50.93 per package despite some volume growth. Meanwhile integration of TNT Express continues. The slowness of the integration has also raised numerous questions including whether FedEx should have actually acquired the European company. Mr. Smith stressed the crippling effects of the 2017 impact and how it was underreported in the press citing an interesting Wired article that, in his opinion, was the best at describing the devastating effects of the cyberattack. The latest update of the integration efforts includes the completion of the injection of legacy FedEx Express intra-European shipments into the TNT European road network. The company expects to be substantially complete with the operational integration by the end of fiscal year 2020. But it is e-commerce that the FedEx team is particularly keen on. A big emphasis on being the low-cost Last Mile provider in the industry is underway as it shifts to seven day a week residential delivery, integrates FedEx SmartPost volume into standard ground operations, and enhances network capabilities around large package handling. FedEx officials expect to have large package operations in almost 40 Ground facilities prior to peak season. Most of these are existing facilities, and this approach minimizes capital expenditures and enables the company to focus on placing large package handling facilities in the strategic locations, such as near ports and railroads. But, this shift will weigh on yields. For the quarter, ground volumes were healthy, growing at over 8%. However, yield grew only 2% year-on-year. Ground yields, although positive growth, have steadily declined during the past four quarters as the company expands its e-commerce service offerings. Meanwhile, Express’ Deferred service reported a very healthy 24% gain in volumes but yield declined almost 7% as more e-commerce related small packages filled the airplanes. How Express will be incorporated in FedEx’s overall e-commerce strategy remains to be seen but Mr. Smith noted on the earnings call that time and distance determines what network packages go on. The FedEx management team appeared optimistic for fiscal year 2020, describing it as one of transformation. President and COO, Raj Subramaniam said of 2020, “We continue to reinvigorate our business to capitalize on e-commerce growth and execute significant initiatives to reduce our costs to serve.” Let’s hope that by reducing their costs to serve that it is also shared with customers as well.

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