Another strong earnings performance by FedEx was reported by the Memphis-based transportation and logistics titan late yesterday.
Fiscal second quarter net income at $16.5 billion was up 9%, and earnings per share at $3.72, which topped Wall Street expectations of $3.11 per share. Quarterly operating income of $1.11 billion was up around 1%. FedEx said that quarterly consolidated earnings were adjusted to exclude the estimated $1.15 billion reduction in its net U.S. deferred tax liability, due to the lower statutory rate that was enacted as part of the Tax Cuts and Jobs Act.
“We remain committed and optimistic about growing earnings, cash flows, returns and margins,” said FedEx Chairman and CEO Fred Smith on the company’s earnings call yesterday. “Economic growth around the world remained broadly based, and we expect U.S tax reform to continue to increase economic growth and investment. FedEx is concerned about the prospect of increased protectionist tariffs as history is shown repeatedly that protectionism is counterproductive to economic growth. The better approach is to encourage open markets and free exchange of products and services and to reduce barriers to trade.”
FedEx had a very strong peak season performance, with Raj Subramaniam, Executive Vice President, Global Strategy, Marketing and Communications, saying on the call that the company experienced record breaking volumes through its global network during the peak season, adding that much of that was driven by gains in e-commerce shipments at FedEx Ground.
“This was the first peak season that we had more than 10,000 FedEx whole locations including FedEx office and well-known retailers such as Walgreens,” he stated. “We are pleased with how the retail network performed and expect this extensive convenience network to be a key part of e-commerce deliveries in the future. The approach we took on our peak pricing strategy of not applying a broad additional peak residential surcharge to all consumers or customers help us gain significant business in the small and medium customers segments. We’re proud of the strong service levels we provided to our customers during this record peak, and we are excited about the portfolio expansions that are rolling out. We will continue to innovate to provide our customers with great service and value.”
FedEx Express revenue, which includes TNT Express, was up 8.5% at $9.37 billion, and operating income dipped 16% to $610 million. FedEx said revenue growth was paced by higher base rates, currency exchange rates and higher fuel surcharges in spite of what it called the “lingering impact from the June cyberattack impacting TNT Express.” And it added that quarterly results were impacted by the estimated impacts of increased peal-related costs, higher TNT Express integration expenses, adverse weather, and favorable net fuel, among other factors.
Total quarterly package revenue rose 8% at $7.001 billion, with U.S. package revenue up 5% at $3.267 billion, and total total international export package revenue up 10% at $2.606 billion.
Total average daily packages at 6.122 million were up 1%, with total daily U.S. domestic packages up flat at 2.822 million and revenue per package up 8% at $18.45. Total daily international export packages at 795,000 were up 1%, with international domestic also up 1% at 2.445 million.
FedEx Ground revenue headed up 11% to $5.22 billion, and operating income rose 23% to $634 million. FedEx noted that revenue was paced by average daily package volume growth of 6%, as well as higher base rates. And it also stated that operating results saw gains, due to benefits from strong revenue growth, and ongoing cost management that was partially offset by increased purchased transportation, seasonal staffing, and network expansion costs, too.
FedEx Freight, the company’s less-than-truckload segment saw a 14% gain in revenue to $1.69 billion, with operating income up 34% to $55 billion. LTL revenue per shipment was up 8% at $259.20, with average daily LTL shipment growth coming in at 6%.
FedEx said that these results were mainly driven by higher LTL revenue per shipment, which was partially offset by higher variable compensation accruals.
“Fedex is on a roll, some of it due to the rate increase at Christmas and then the start of the year,” said Jerry Hempstead, president of Hempstead Consulting. “This particular quarter is December, January, and February, so the data reflects the deluge of peak shipping for the holidays and then the impact of the rate and rule changes ( like changing the dimensional divisor to 139 and adding a 2.5% tax on third party billed shipments) and the stability of the price FedEx is paying for fuel versus what they have been charging for the fuel surcharge.”
Hempstead explained that the key to understanding the results is the massive benefit the new tax bill brings to big transports like FedEx and to its employees who got increased in their paychecks as a result of the tax changes. He also noted that it also appears that all those peak shipments drove all sorts in additional costs, as was the case with UPS, which negatively impacted margins.
“That is another example of profitless prosperity brought on by the huge bubble that occurs in December from e-commerce companies sending to residences,” he said. “Don’t be surprised by new and improved seasonal surcharges that may come our way in the fall.”