FedEx gains a grip on TNT but Express is slow

One of the more promising aspects of FedEx’s Q1 2016 results was the apparent health of TNT in an organisation that continues to grow at a moderate pace.

For the company as a whole, revenue grew from US$12.3bn Q1 2015 to $14.7bn this quarter, however these numbers were complicated by the TNT acquisition. Similarly, operating income was up from $1.14bn for the same period last year to $1.26bn, yet due to amortisation at TNT this represented a weakening of margins, although adjusting for these FedEx asserts that margins were flat.

The core business does not appear to be growing so rapidly in volume terms, up 8% year-on-year, but with key US package and International package up only 1%. This resulted in a revenue increase of $7m over the same period last year, to $6.7bn this quarter. Despite this, tight capacity management is delivering better margins and leading to income rising by 14% year-on-year. The TNT Express business saw an underlying profit of $34m before write-offs and restructuring costs.

FedEx Ground saw a perky performance, benefitting from e-commerce with revenue up 12% and income up 14%. FedEx Freight, however, reflected the depressed state of the US road freight sector with a 4% increase in revenue and a 2% increase in income, despite an 8% rise in shipments.

The TNT results suggested that so far FedEx is manging the integration effectively and that demand for TNT’s services is reasonably healthy. However, it is a bit disappointing that the core Air Express business is not growing faster. Bearing in mind that FedEx said that it expected a record Christmas season in terms of e-commerce demand, it is a little hard to understand why it has not been able to tap into the e-commerce market as FedEx Ground has done, or indeed as DHL Express has.

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Source: Transport Intelligence, September 22, 2016

Author: Thomas Cullen