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September 21, 2021 6:00 PM, EDT

FedEx Revenue Rises, but Higher Labor Costs Affect Bottom Line

A FedEx driver scans packages in San Francisco A driver for an independent contractor to FedEx scans packages outside a truck in San Francisco. (David Paul Morris/Bloomberg News)

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FedEx Corp. reported an increase in revenue for its fiscal first quarter, but said rising costs affected bottom-line results for the period.

The company on Sept. 21 said revenue rose to $22 billion compared with $19.3 billion a year ago, lifted in part by continuing strength in online spending. However, fiscal Q1 net income declined to $1.11 billion, or $4.09 a share, compared with $1.25 billion, $4.72, a year ago. Investment research firm Zacks expected income of $21.8 billion and EPS of $4.96 a share.

FedEx operates on a fiscal year cycle, and these results are the first of its fiscal year 2022.

FedEx in a statement said it recorded a $450 million year-over-year increase in Q1 costs amid higher wages rates, increased costs for purchased transportation and network inefficiencies.

“The execution of our strategies continues to drive higher demand for our services, despite the disruptive impact of the pandemic to labor availability and global supply chains,” CEO Fred Smith said. “I am very proud of our team members around the world who continue to transport lifesaving vaccines and deliver urgently needed supplies to those affected by natural disasters like Hurricane Ida and the recent earthquakes.”

“The FedEx teams continue to diligently deliver for our customers under unique and challenging circumstances,” added president and COO Raj Subramaniam. “The current labor environment is driving inefficiencies in the operation of our networks and significantly impacting our financial results. For the peak season ahead, service remains our focus, and we are making investments in resources and capacity to meet our customers’ needs.”

The company expects ongoing labor challenges to continue for the next several months.

On a Sept. 21 conference call with financial analysts, Subramaniam noted that the company’s Portland distribution center for the FedEx Ground operation is operating at 65% capacity because of the labor shortage. He said 25% of the facility’s operating volume is being diverted to other locations. Across the company’s network, he said 600,000 packages a day are being routed to different locations because of staffing shortages.

With the holiday shopping season on the horizon, FedEx plans to hire 90,000 people to help keep shipments moving.

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“Our results for the first quarter reflect higher operating costs we are incurring during this uncertain and challenging operating environment,” CFO Michael Lenz said. “While we expect these conditions to continue near-term, we expect a gradual improvement in labor availability combined with our proactive revenue management actions to mitigate the ongoing impact of these headwinds on our results and position us for earnings growth in fiscal 2022.”

FedEx Express, the largest division, saw Q1 revenue surge by 14% to $10.9 billion from $9.6 billion a year ago.

FedEx Ground reported revenue of just below $7.7 billion, a 9% year-over-year jump from last year’s $7.0 billion.

FedEx Freight saw Q1 revenue rise 23% to $2.25 billion year-over-year, compared with $1.8 billion in 2020.

FedEx said package and delivery volume surged by double-digit increases in all sectors, including overnight box drop-offs, overnight envelopes, U.S. overnight package deliveries, total U.S. package deliveries, international priority and international economy.

FedEx also has set an increase in shipping rates that will take effect in January. The company on Sept. 20 said the increases would apply to all U.S. domestic, export and import services. Rates at FedEx Ground, which delivers to businesses, and FedEx home delivery will increase by an average of 5.9%, and FedEx Freight customers could see an increase of up to 7.9%.

FedEx cited the “challenging operating environment” for the increases, and said the additional revenue will allow the company to invest in its network, including enhancing service, maintaining its fleet, and technology innovations.

FedEx Corp. ranks No. 2 on the Transport Topics Top 100 list of the largest for-hire carriers in North America. It ranks No. 23 on the TT Top 50 logistics companies list.

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