FedEx says “toughest winter ever” hit earnings by $125m
FedEx yesterday blamed “historically” severe winter weather for “significantly” affecting its financial results in the latest quarter. The company said multiple severe storms were more pronounced than usual in the United States, prompting Chairman Fred Smith to describe the quarter as the “toughest winter in which FedEx has ever operated”.
The quarter running from December to February still saw revenue up 3% on last year, to $11.3bn, thanks to higher Ground and Freight volumes, with net income up 5% on last year to $378m.
But, the performance was behind analysts’ expectations, and FedEx has reduced its forecast for full-year earnings to $6.55-$6.80 per diluted share for fiscal year 2014.
The Memphis-based corporation said the winter storms in the United States disrupted operations in the run-up to Christmas and hit earnings by some $125m in the third quarter.
In FedEx Express, company estimates suggested that the weather hit volumes by 40,000 packages a day, with another 100,000 per day at FedEx Ground. Alan Graf, the chief financial officer told analysts that the company had its de-icing plans “in the wrong place”, and had to use a significant amount of overtime to resolve issues.
Nevertheless, the company’s performance on Christmas deliveries did not attract quite the level of public criticism as rivals UPS, since UPS has a greater market share of e-commerce deliveries. Graf said the express performance was “unbelievably high” considering the challenges.
Smith said his company’s strategy of maintaining separate air and ground networks, using multiple hubs, helped during the busiest period in package delivery history.
But the FedEx chairman said considering the pressure that the few weeks of Christmas e-commerce places on delivery networks, consumers and providers had to have “a bit of realism” as to what delivery companies could achieve, even the Postal Service.
Smith said Twitter and other social media had had a much bigger role to play in highlighting poor delivery performances this year. He also said that e-commerce merchants shared some of the blame for the difficult season, with some packages damaged because they were poorly packed, or delayed because labels were not properly attached.
“Customers are not going to tolerate these types of things,” Smith warned. “The e-commerce shippers that succeed long-term are going to be the ones that work with us to try to improve those processes and quality of their service.”
Divisions
Among the FedEx divisions, Express revenues were similar to last year’s third quarter with lower freight revenue and fuel surcharges, along with the effect of the winter weather. The ongoing shift of customers from priority to economy international services also affected results.
FedEx Ground grew its revenues 10% year-on-year to $3bn thanks to e-commerce and the company’s SmartPost service, which uses US Postal Service last mile delivery. Daily volumes grew 8% in Ground with SmartPost volumes up 2%, helping operating income grow 2% in Ground overall to $477m for the quarter. FedEx is investing in expanding its Ground and SmartPost businesses to build on the growth potential from e-commerce at the moment.
FedEx Freight saw its revenues up 9% on the back of 7% growth in truckload shipments, with good growth in less-than-truckload shipments tempered by 3% increase in fuel costs. FedEx Freight is raising certain US shipping rates in the United States by an average of 3.9% from the end of this month.
During the third quarter, FedEx accelerated its share repurchase programme, but said this had minimal impact on profits.
The company is in the middle of a cost-cutting programme that has seen about 75% of 3,600 employees offered voluntary severance packages accepting the opportunity to leave the firm. The remaining 900 jobs will be axed by the end of May.
