FedEx Q4 Earnings Report Pleases Investors
July 1, 2020
As noted in FedEx’s earnings release, “virtually all revenue and expense line items were affected by the COVID-19 pandemic during the quarter. Approximately $125 million increase in operating costs were incurred and were related to personal protective equipment and medical/safety supplies, as well as additional security and cleaning services to protect FedEx team members.”
Indeed, operating income was significantly down for FedEx’s three divisions – Express, Ground and Freight. Ground was the only division to report a positive revenue increase, 20%, year-over-year and strong, double-digit increase in average daily volume of 25%.
FedEx Express expects to take advantage of reduced passenger plane capacity which is expected to be down for quite some time in order to gain market share on the Trans-Pacific and Trans-Atlantic lanes. Extra capacity was added for the short-term and the company noted that it was renegotiating customer contracts to better reflect current market conditions.
GROWTH FOR FEDEX
Meanwhile, for the quarter, FedEx reported that total U.S. domestic residential volume was 72% versus 56% a year ago. Since the end of April, however, the company has seen week-over-week growth in its business-to-business (B2B) segment. In early June, temporary surcharges including SmartPost, Oversized and residential were implemented to” help us manage increased demand while maintaining strong level of service for our entire base of customers” according to Brie Carere, Executive Vice President and Chief Marketing and Communications Officer for FedEx. However, there was no mention during FedEx’s earnings call regarding volume caps placed on some shippers and delivery delays in parts of the U.S.
Carere further noted that the residential delivery charge affects a small number of FedEx’s largest customers who have had surging volume. In addition, FedEx is also working closely with its largest e-commerce customers to establish peak plans which include differentiated residential surcharges for the month of November and December.
Raj Subramaniam, President and COO of FedEx, highlighted FedEx Ground’s initiatives to maximize its capacity including: leveraging its seven-day Ground network; repurposing SmartPost facilities for small or large package sortation and adding new low-cost regional sort facilities designed to handle shorter zone residential volumes into certain key markets.
The network-wide rollout of dynamic route optimization technology continued through the pandemic and is expected to be completed prior to peak 2020.
FedEx also continued collaboration across its operating companies. For example, FedEx Freight has provided more than 1 million miles of road and intermodal support for FedEx Ground since late April. In Q4 alone, FedEx Freight delivered approximately 270,000 large Ground packages.
Also, delivery of specific FedEx Express residential and rural packages by FedEx Ground launched in 26 origin markets with an additional seven markets scheduled in July.
STOCK FINALLY IMPROVING
Financial analysts were optimistic resulting in double-digit growth in FedEx’s stock. "After what seemed like a marathon of disappointing quarters, FedEx finally delivered some hope for long suffering stockholders when fiscal 4Q20 results including very strong FedEx Ground growth and some evidence of margin stability in the face of surging e-commerce volumes," said Loop Capital analyst Rick Paterson, who maintained his 'buy' rating on the stock.
ABOUT SPEND MANAGEMENT EXPERTS
Spend Management Experts provides strategic guidance to optimize your supply chain. Using cost modeling technology and market intelligence, we help companies with their transportation, distribution and fulfillment spend. Often large shippers can reduce their spend across the supply chain by 20% or more. We specialize in reducing distribution costs, increasing efficiencies, dynamic reporting, greater budgeting and forecasting accuracy and optimizing supply chain execution. We leverage our proprietary models to identify savings and build negotiation strategies based on data and business cases. As industry experts, our fresh approach provides clients with straightforward details on exactly how savings are derived. Spend Management Experts is your competitive edge, delivered.