FedEx picked up a good bit of the 1 million packages a day that UPS said it lost due to shipper uncertainty in the runup to its July 31 contract deadline with the Teamsters during the first quarter ended Aug. 31, adding an average of 400,000 daily packages for its Ground and Express units, and expressing confidence the new accounts will be sticky.
That translated to a 1% increase in volume for FedEx Ground over 2022’s Q1, with revenue up 3%. At the Express unit, the company said volume was down slightly year over year, and revenue dipped 9%. This included the impact of the U.S. Postal Service diverting significant volume from air freight to its more economical ground network.
FedEx Freight also gained an incremental 5,000 in average daily shipments from the recent demise of Yellow Freight, although some analysts noted much of this was on the lower yield side. About half of this came directly from Yellow customers, while the balance arrived via shippers who initially used other carriers but experienced service issues, said EVP and chief customer officer Brie Carere.
Overall revenue for FedEx was down 6.5% to $21.7 billion, compared to the S&P IQ analyst consensus of $21.8 billion. But through various cost-cutting measures — including the grounding of Express planes and reducing flights — the company did produce a win on the bottom line. Net income increased 23.4% to $1.08 billion, and adjusted earnings per share was $4.55, compared to a Refinitiv analyst consensus of $3.73 to $3.77.
“Across the Ground and Express, volumes improved sequentially, aided by the threat of a strike at our primary competitor,” said Carere on the analyst call. “We onboarded new customers who valued our service and were committed to a long-term partnership with FedEx.”
FedEx CEO Raj Subramaniam said the company hit its goal of driving out $2 billion in costs in fiscal 2023, and is continuing on that lean path, targeting $1.8 in savings in the current year. He also said FedEx is focused on improving yield per package, adding Ground had its most profitable quarter on an adjusted basis.
New FedEx CEO John Dietrich said adjusted operating income at Ground for Q1 was up 61% from last year, and adjusted operating margin improved from 8.5% to 13.3%.
“While the captured upside as a result of these one-time events (UPS and Yellow Freight), we were highly discerning in terms of the business we accepted in keeping with our goal to drive high-quality revenue,” Subramaniam said. “Importantly, we expect to maintain the majority of the volume we added in the quarter.”
The CEO said efforts are on track to consolidate Ground, Express and FedEx Services into one combined company by June 2024. The strategy, called One FedEx, was announced last year and was long overdue, observers said. He said it’s been implemented in several markets, including Alaska, Hawaii and Canada.
“As each market is different, we’re continuously learning and tailoring the network to adapt to the operational characteristics unique to each region while delivering the highest-quality service for our customers,” Subramaniam said. “We continue to use both employee couriers and service providers for pickup and delivery operations across the network.”
Carere noted that FedEx’s 5.9% general rate increase (GRI) for 2024, announced earlier than usual, was one point below the current figure. UPS soon followed suit with the same GRI for next year.
“This average annual increase … reflects the current cost and market environment, along with the investment we need to serve customers effectively,” she said.