E-commerce helps FedEx profits more than double in Q3

FedEx Corporation saw its profits more than double in its third quarter thanks to record holiday season package shipping and the performance of its FedEx Ground unit. Revenues for the quarter rose 9% compared to the same period last year, to $10.56bn for the quarter, but as operating margins rose from 4.1% to 7.7%, net income soared 126% to $521m for the three months ended February 29.

The strength of e-commerce and ground shipping helped overcome a fairly weak US express market, which saw volumes slipping 4%.

The company is now looking into the potential to adjust its US network capacity to improve efficiency as volumes increase.

Frederick W Smith, the FedEx chairman, said: “FedEx Corp results were driven by improving yields, record holiday package shipping and exceptional performance at FedEx Ground.

“We expect our solid performance to continue in our fourth quarter, capping off a strong fiscal year.”

Divisions

During the quarter, FedEx Express saw its revenue up 8% from last year’s third quarter, to $6.54bn. Although US domestic volumes fell, international priority volumes increased 5%, with weight up 2%, while margins grew from 2.9% to 5.3% to help operating income almost double to $349m. The express unit’s performance was also assisted by fuel surcharge issues.

FedEx Ground saw its average daily package volume rising 5% with growth in both FedEx Home Delivery services and business-to-business services.

The unit’s FedEx SmartPost service, which relies on US Postal Service last mile delivery, saw a 13% growth primarily from e-commerce activity. The growth helped FedEx Ground’s revenue to climb 14% year-on-year to $2.48bn.

FedEx Freight saw less-than-truckload volumes up 2% in the quarter, while higher fuel surcharges helped a 6% improvement in yields. A mild winter added its favourable impacts, but comparison to last year’s third quarter was particularly improved because of the restructuring from merging FedEx Freight with FedEx LTL this time last year.

For the quarter compared to last year, FedEx Freight saw its revenues up 10% to $1.23bn, while its operating losses of $110m seen a year ago this quarter were almost wiped out, with just a $1m loss posted by the unit this quarter.

Settlement

Today it was also announced that FedEx Corp will pay $3m in back wages to 21,000 applicants rejected for jobs at 23 FedEx facilities in 15 US states.

The case brought by the US Department of Labor accused FedEx Ground and fedEx SmartPost of hiring discrimination. Seven years of spot checks found that the FedEx units were “discriminating on the basis of sex, race and/or national origin against specific groups” in their hiring practices.

FedEx was required to comply with federal hiring standards because it is a federal contractor. In its settlement, the company agreed to make reforms to its hiring system, said the US Department of Labor.

US Secretary of Labor Hilda L Solis said: “This settlement is proof that we will aggressively protect workers, promote workplace diversity and enforce laws governing federal contractors.”

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