Ground units continue to hinder FedEx results

FedEx Ground continues to be the saddle burr of the parent FedEx Corp.

The company’s ground-based unit operating profit fell by FedEx by $ 61 million. (NYSE: FDX) $ 641 million in the third quarter of 2022. This happened even though the unit generated nearly $ 1 billion in revenue during the quarter and ended up at $ 8.8 billion. FedEx said late Thursday after announcing its quarterly earnings, the unit’s operating margin, which is now around 8%, could reach double-digit levels by the end of the year, as company executives expected. Said not.

In this quarter, including the holiday shipping season, the FedEx unit suffered six months of operational inefficiency in the rearview mirror, primarily due to labor shortages. Nevertheless, the unit’s efforts to improve staffing were economically costly, which was reflected in the final result.

The issue at FedEx Ground contributed to the parent company’s adjusted diluted earnings per share of $ 4.59. This was below the median estimate of $ 4.64 to $ 4.69 per share. The company’s aviation and international division, FedEx Express, the largest of the four divisions, reported operating profit of $ 520 million, up from $ 436 million in the year-ago quarter. The company’s LTL division, FedEx Freight, created a strong quarter and operating profit almost tripled year-over-year. According to FedEx, unit revenue increased from $ 1.83 billion to $ 2.25 billion and operating profit increased 850 basis points to 15%.

Overall, FedEx (NYSE: FDX) recorded revenue of $ 23.6 billion, up 10% year-on-year. Adjusted operating profit increased from $ 1.60 billion to $ 1.46 billion and the operating margin increased from 4.9% to 6.2%. Net income increased from $ 939 million to $ 1.22 billion. Solid results, especially from FedEx Freight, were overshadowed by the FedEx Ground issue.In after-hours trading, stocks fell 3.5%

FedEx is expected to perform strongly in the fourth quarter, although it is expected due to seasonality. The company has raised its full-year EPS guidance from $ 18.25 to $ 19.25 per share to $ 18.60 to $ 19.60 per share.

FedEx faces two challenges, especially on the consumer side: soaring costs and slowing demand. The company, which operates the acclaimed Economic Forecasting Unit, reduced US GDP growth from 3.7% to 3.4% in 2022 and forecasts growth of 2.3% in 2023. It also reduced global GDP growth in 2022 from 4.1% to 3.5%. ..

Most US corporate-to-consumer activity is related to e-commerce and is expected to grow at a compound annual growth rate of 8.3% by 2026. The company says this is lower than previously expected and reflects a slowdown in consumer demand.

FedEx executives said subsequent analysts were aggressively revising the prices of legacy contracts with shippers to stay ahead of rising inflation. The company announced that it will raise the additional charge for diesel fuel by 1.75% from April 4 in response to the recent rise in fuel prices.

FedEx will adjust its fuel surcharge one week after the latest price announcement from the Energy Information Agency. Additional charges are based on the diesel price range set by the EIA.

For example, FedEx Ground’s latest diesel surcharge is set at 16.25%, based on the average highway fuel price of $ 5.25 a gallon last Monday. Starting April 4, if the fuel price on March 28 remains constant with the price set on March 14, that number will rise to 18%.

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