FedEx Posts 146% Increase in Fiscal Third-Quarter Profit
This story appears in the March 22 print edition of Transport Topics.
FedEx Corp. posted a 146% increase in quarterly net income driven by explosive growth in returns at its air express division and a nearly one-third increase in ground parcel delivery profits, the second-largest company in North American freight transportation said March 18.
FedEx earned $239 million, or 76 cents a share, on quarterly revenue of $8.7 billion. In the year-ago quarter it earned $97 million, or 31 cents a share, on revenue of $8.14 billion.
In addition to the news on improving profits, company executives said recovery in the global economy is accelerating, and that will enable management to engage in a comprehensive campaign to improve pricing for its services, even if it means walking away from poorly paying accounts.
“In our view, the improving economy will result in a better pricing environment, consistent with our strategy to improve yields across all our transport segments,” FedEx Chairman and CEO Frederick Smith said at the start of an earnings call.
The financial results ended a streak of four straight quarters of either declining profits or accelerating losses for the Memphis, Tenn., company. Only the less-than-truckload division reported a loss for the fiscal third quarter ended Feb. 28.
Later in the call, Executive Vice President T. Michael Glenn offered details on the company’s multiprong strategy for restoring freight rates after a year of careful frugality.
Glenn said FedEx has “revised the pricing guidelines for new business to ensure appropriate yields coming in, given the economic improvement that we have seen.”
Account representatives would work with customers so their freight is steered toward the most recent service line, whether air, ground delivery, home delivery, discounted SmartPost or less-than-truckload, he said. However, once freight is in the most advantageous service line from the customer’s point of view, FedEx wants to be well paid for shipping it.
“We have stated very clearly to our sales team that we’re willing to walk away from specific accounts, absent reasonable rate increases, so we’re taking a much firmer stance in this regard. And then we’re also providing incentives to our sales team to ensure that we increase yields for accounts that are not producing acceptable margins.
“And these tactics apply not only to the parcel segment, but to the LTL segment, as well. We do believe the pricing environment is firming. I’m confident in our ability to execute this new pricing strategy and I think you will see the results in quarters ahead,” Glenn said.
Operating income at the FedEx Express unit was almost six times as large as in the year-ago quarter, rising to $265 million from $45 million. Sharply higher volumes of International Priority packages and air freight led to the improvement.
At the FedEx Ground parcel division, SmartPost, volume grew by 46% over last year’s quarter, while volumes for the conventional service lines rose by 5%.
At the LTL FedEx Freight division, quarterly revenue grew by 14%, but expenses climbed by 18%, causing the unit’s loss to accelerate year-over-year.
Shipments per day improved by 26%, year-over-year, and the average shipment put on an additional 1% of weight, but pricing, as measured by revenue per hundredweight, dropped by 8% to $16.82 from $18.21.
Chief Financial Officer Alan Graf Jr. said the pricing improvements he expects to see in freight transportation were definitely not present in the LTL industry at the start of the year.
“The LTL market remains highly competitive due to excess capacity. . . . A weak pricing environment was the major contributor for the loss of $107 million in the quarter,” Graf said.
