FedEx’s profit improvement programmes continue to prove successful for the company as it delivered a 22.0% increase in operating income to $1.01bn and an improved operating margin of 8.5% for the quarter ending November 30. Furthermore, revenue increased 5.0% to $11.9bn with all three major divisions reporting good gains.
Despite the financial gains, the US west coast ports situation weighed on operations. According to the company, it adjusted capacity in ‘key markets’ and in certain situations, FedEx had to set limits on customer volumes in order for it to meet service commitments.
FedEx Express division recorded a 3.0% gain in revenue of $7.02bn and thanks to network changes and cost management, operating income increased 36.0% to $484m. Revenue gains were attributed to a 7.0% increase in US domestic package volume. However, declining oil prices resulted in a reduced fuel surcharge which then in turn saw US domestic revenue per package declined 2.0%. The company also noted average weight per shipment declined as well.
There was particular interest in the company’s Ground division as it enters the holiday season. Although the financial period ended November 30, it did indicate that margins declined a bit to 15.2% from 15.4% due to investments it made to its network in preparation for holiday period. Still, revenue increased 8.0% to $3.06bn and operating income increased 6.0% to $465m. Revenue per package grew at a slower rate of 3.0% and was due to rate increases and higher residential surcharges. Meanwhile, SmartPost revenue per package noted a bigger gain of 7.0% despite a volume decline of 4.0%.
Finally, FedEx Freight continues to record good results thanks to past restructuring and network changes with operating margins improving to 7.1% up from 5.8%. Revenue increased 11.0% to $1.59bn while operating income increased 35.0% to $112m. Average volumes increased as did revenue per shipment.
All told, FedEx recorded a decent financial quarterly report despite higher expectations from Wall Street. The company is excited by its recent acquisitions of Genco and Bong, and rightfully so but questions are worth noting as it enters its fiscal year Q3: the prolonged US west coast situation, effects of falling oil prices on fuel surcharges and the holiday season.
Despite Wall Street’s disappointment, FedEx maintains its outlook assuming continued moderate economic growth and a modest net benefit from fuel.