revenue increased 10% in the third fiscal quarter as higher shipping rates offset fewer packages shipped overall.
The delivery giant’s profit rose 25% from a year earlier to $1.1 billion, led by its smallest unit, Freight, where operating profit nearly tripled thanks to tariffs higher. Its two largest divisions, Express and Ground, have been pinched by the effects of Covid-19 variants, which have hurt employee availability and reflected higher wages needed to attract workers, among other cost increases.
Overall, FedEx FDX 0.91%
shipped an average of 16.8 million packages a day in the three months ended Feb. 28, compared with 17.6 million in the year-ago quarter, as the boom in package shipments following the pandemic s fades.
While profits at its large Express unit rose 12%, its Ground division, which primarily delivers e-commerce packages to homes in the United States, saw a 9% drop in profits. The latter unit struggles to staff its network adequately, creating inefficiencies in moving and sorting packages across its network. FedEx said higher costs for securing transportation during the period, which included Christmas preparation, also weighed on its results.
The shares fell less than 1% in after-hours trading.
FedEx has been struggling to attract enough workers to effectively run its operations in recent months. In December, company executives said higher wages and other benefits, such as flexible hours and tuition reimbursement, had helped them recruit enough workers for the critical vacation period.
Across the parcel delivery space, the peak shipping season between Thanksgiving and Christmas turned out to be lighter than expected as retailers offered promotions earlier than normal and shoppers also returned in stores to do their holiday shopping. UPS,
which noted the unexpected slowdown in shipment volume in December, said last month that it quickly returned rental vehicles and laid off temporary workers to preserve profits as shipment levels slowed.
More recently, FedEx has faced other challenges over the past period, severe winter storms, Covid-19 outbreaks and quarantines among its aircrew and the war in Ukraine. The carrier has suspended operations in Belarus, Russia and Ukraine.
The findings come as FedEx faces unrest among its base of ground contractors, whose small businesses deliver all packages that pass through that division.
More than 800 contractors recently sent a letter to company executives after the last holiday season, in which they said FedEx had released shipping volume projections that were too high. Contractors said they rented trucks and added staff in anticipation of additional packages, but when that didn’t happen, it hampered their FedEx payments, which are based on the number of stops made by drivers and the packages they deliver.
The contractors also outlined other issues in the letter, from inaccurate daily data to plan their routes and staffing levels to the added costs of operating seven days a week. It also comes as contractors grapple with rising labor and fuel costs.
FedEx has recognized the issues faced by contractors and is working with them to help them succeed.
For the three months ended Feb. 28, FedEx posted earnings of $1.1 billion, or $4.20 per share, compared with $892 million, or $3.30 per share, in the same one-year period. earlier. Excluding items such as integration and restructuring expenses, FedEx said earnings per share rose to $4.59 from $3.47 a year ago.
Revenues totaled $23.6 billion.
Analysts recently polled by FactSet had expected FedEx to post earnings of $4.65 a share on $23.41 billion in revenue.
FedEx maintained its profit outlook for the year and cut its capital spending plans from $200 million to $7 billion for the full year.
FedEx is also moving forward with new leadership in its Express unit. Last week, he said Richard Smith, who is the son of FedEx founder Fred Smith, would become the division’s next chief executive, following the retirement of Don Colleran. Young Smith has worked at FedEx since 2005 in a variety of roles, most recently with Express Operations as Regional President of the Americas and Executive Vice President of Global Support.
Write to Paul Ziobro at [email protected]
Corrections & Amplifications
FedEx Freight’s operating profit nearly tripled. An earlier version of this article incorrectly stated that revenue in the Freight division had nearly tripled. Additionally, FedEx shipped an average of 16.8 million packages a day in the three months ended Feb. 28. An earlier version of the article said the average was 16.8. (Corrected March 17, 2022.)
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