FedEx on fiscal 2020: “a year of continued significant challenges and changes”
FedEx has announced its Q2 results – reporting a 40% drop in fiscal second-quarter profits. Domestic Express parcel volumes fell 4.1% compared to last year, while Ground shipments rose 3.5%. Operating profit margins in FedEx’s Ground business decreased to 6.7%, down from 12.4% in the first quarter.
“Fiscal 2020 is a year of continued significant challenges and changes for FedEx, particularly in the quarter just ended due to the compressed shipping season,” said Frederick W. Smith, FedEx Corp. chairman and chief executive officer. “We have significantly enhanced our e-commerce capabilities with strategic initiatives including year-round seven-day FedEx Ground delivery, enhanced large package capabilities and the insourcing of FedEx SmartPost packages. These changes have been well-received by the marketplace as reflected in our record volumes this peak season. While we have experienced some higher-than-expected expenses this quarter, we forecast FedEx Ground operating margins to rebound to the teens in our fiscal fourth quarter as the bow wave of costs for these changes is absorbed.”
“Thanks to over 490,000 FedEx team members for their hard work and dedication to our Purple Promise of making every FedEx experience outstanding.”
Operating results declined due to weak global economic conditions, increased FedEx Ground costs from expanded service offerings, the loss of business from a large customer, a continuing mix shift to lower-yielding services and a more competitive pricing environment. In addition, the later timing of the Thanksgiving holiday resulted in the shifting of Cyber Week into December, which negatively impacted the quarter’s results. These factors were partially offset by lower variable incentive compensation expenses and increased yields at FedEx Freight. Net income includes a tax benefit of $133 million ($0.51 per diluted share) from the recognition of certain foreign tax loss carryforwards.
FedEx Express recorded asset impairment charges of $66 million ($50 million, net of tax, or $0.19 per diluted share) related to the permanent retirement of 10 Airbus A310-300 aircraft and 12 related engines. During the remainder of fiscal 2020, FedEx Express will make further network capacity changes by reducing flight hours. The company continues to evaluate if additional aircraft retirements are warranted.
“Our strategies are clear: To develop the premier e-commerce portfolio in the U.S., improve international profitability, enhance our market-leading revenue quality and continue to optimize our U.S. and international networks,” said Rajesh Subramaniam, FedEx Corp. president and chief operating officer. “We are also taking immediate actions to address the short-term challenges facing our business, including eliminating multiple international flights to reflect reduced global air freight demand. These actions combined with benefits from the TNT integration should allow FedEx Express to enter fiscal 2021 with profit improvement underway.”
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