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September 15, 2020 7:00 PM, EDT

FedEx Posts Strong Quarterly Earnings, Fueled by E-Commerce

A FedEx truck is unloaded in DallasA FedEx driver unloads boxes in downtown Dallas. (Cooper Neill/Bloomberg News)

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A huge surge in e-commerce deliveries to homes and businesses because of the COVID-19 pandemic boosted FedEx Corp.’s fiscal first-quarter earnings when the delivery giant reported its financials Sept. 15.

The Memphis, Tenn.-based parcel delivery giant reported net income of $1.28 billion or $4.82 a share for the period ending Aug. 31 compared with $800 million or $2.84 a share in the first quarter of fiscal 2019.

Revenue jumped 13.5% to $19.3 billion from $17 billion last year.

Earnings easily beat Wall Street analysts’ expectations, which, according to Yahoo Finance, were expecting a price of $2.70 a share and revenue of $17.5 billion.

The company said its financial position improved because of volume growth in its FedEx International Priority service and U.S. domestic residential package services. Officials also cited yield improvements at the FedEx Ground and FedEx Freight divisions and by starting seven-day-a-week residential delivery service Jan. 1.

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Also, additional business partially offset the increased costs FedEx incurred due to the strong demand for its services, variable compensation expenses, and COVID-19 related expenses to enhance the safety of its employees and customers.

“Our earnings growth underscores the importance of our business initiatives and investments over the last several years, and, in many ways, the world has accelerated to meet our strategies,” CEO Fred Smith said. “I would like to thank our team members whose efforts during this time have helped keep the world’s health care, industrial and at-home supply chains moving despite the challenges of the global pandemic.”

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FedEx’s fiscal first-quarter numbers were a significant improvement over its fourth-quarter results, announced June 30. Those numbers were heavily influenced by the deep slump in the economy because of the coronavirus pandemic in April, May and June. The company then reported a quarterly loss of $334 million, or $1.28 a share.

On a conference call with business analysts and reporters, company officials said the more than six-month surge in online shopping and e-commerce exceed their expectations by several years.

 

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“Pre-COVID, we predicted the U.S. domestic market would hit 100 million packages per day by calendar year 2026,” Chief Marketing Officer Brie Carere said. “We now project 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. Ninety-six percent of the U.S. growth is expected to come from e-commerce.”

Revenue in three of the five FedEx divisions increased during the quarter:

  • FedEx Express increased by 8% year-over-year to $9.65 billion from $8.94 billion a year ago.
  • FedEx Ground surged 36% to $7.04 billion compared with $5.18 billion in the 2019 period.
  • FedEx Services saw a 100% increase to $8 million from $4 million last year.

FedEx Freight experienced a 4% decline to $1.82 billion from $1.9 billion last year. Revenue from other unspecified categories dropped by 21% to $800 million from $1.01 billion a year ago.

The earnings report comes as retailers and shippers prepare for what is expected to be a holiday blitz as millions of consumers buy online rather than venture out to stores and malls.

Raj Subramaniam

Subramaniam

“This will be a peak season like no other,” Chief Operating Officer Raj Subramaniam said. “Having operations seven days a week helps a lot here, too, with the technology that we have.”

FedEx said Sept. 14 it plans to add more than 70,000 positions to prepare for the crunch. The company also announced that the Express, Ground, Home Delivery and Freight divisions would increase shipping rates an average of 4.9% beginning in January.

Officials, too, discussed SenseAwareID, a new package-tracking technology. It is anticipated that SenseAwareID will be used in the distribution of COVID-19 vaccines.

The technology transmits real-time data, including precise location, temperature and whether a package has been opened, while a shipment is in transit. SenseAwareID will be made available in November for First Overnight shipments in the U.S. domestic FedEx Express network for health care, aerospace and retail industry customers.

“We have engaged with several of our customers who are in the vaccine-production mode, and we are planning appropriately for it,” Subramaniam said. “The timing is TBD. I think we are well-situated to handle those vaccines.”

FedEx ranks No. 2 on the Transport Topics Top 100 list of the largest for-hire carriers in North America and No. 15 on the Transport Topics Top 50 list of North America’s largest logistics companies.

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