FedEx falters as business deliveries fall
FedEx Corp flipped to a US$334-million loss in its fiscal fourth quarter, but its revenue and adjusted profit beat Wall Street expectations as the COVID-19 pandemic continues to fuel a boom in online shopping.
With many United States residents staying close to home, online shopping has picked up, and that helped drive a 20 per cent increase in revenue for FedEx’s ground-delivery business.
But deliveries to customers’ homes are more costly and not as lucrative as deliveries between businesses, which have fallen sharply as businesses shut down – temporarily or permanently – since the onset of the pandemic.
Revenue in FedEx’s core express-delivery unit fell 10 per cent and operating income tumbled 56 per cent. There were some bright spots, however. The express unit saw an uptick in flights across the Pacific.
Matt Arnold, an analyst for Edward Jones, said the results were “better than feared,” with expectations centred around weakness in business-to-business deliveries. Revenue in the ground unit was much stronger than most analysts expected, he said.
“The surge in e-commerce volume was a pleasant surprise, even though it’s a difficult business to make money in,” Arnold said. “Those (residential deliveries) are not very profitable deliveries to make.”
FedEx did not offer a prediction about earnings in its fiscal year that started June 1. The company, based in Memphis, Tennessee, said the uncertain speed of economic recovery from the pandemic makes that kind of forecast impossible.
FedEx said it spent about US$125 million on protective gear and extra cleaning services because of the virus outbreak. The company got a break on fuel costs, however, due to lower energy prices.
The fourth-quarter loss equalled US$1.28 per share.
Revenue dipped three per cent to US$17.36 billion, but that, too, beat the analysts’ average prediction of US$16.12 billion.
For the fiscal year, FedEx reported profit of US$1.29 billion on revenue of US$69.22 billion.
The company plans to cut capital spending by US$1 billion, to US$4.9 billion, in the new fiscal year.