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.
Source: Transport Intelligence, September 22, 2016
Author: Thomas Cullen