FedEx Profit Pressured by Express Unit's Woes -- Update
26 Juin 2019 - 02:23AM
Dow Jones News
By Charlie McGee
FedEx Corp. said profits were squeezed in its most recent
quarter as a global slowdown in trade and a shift by customers to
slower and cheaper delivery options continued to weigh on the
shipping giant's core Express business.
The company said those factors would contribute to a decline in
adjusted profit for the current fiscal year, after Wall Street had
been expecting an increase. FedEx had cut its earnings outlook in
each of the two previous quarters.
The company has been restructuring its operations to adjust to
the rise of e-commerce orders and combat slowing international
shipping. It recently ended a key contract with Amazon.com Inc. and
announced plans to offer seven-day home delivery and to handle more
of the packages it used to route through the U.S. Postal
Service.
"We have to be very efficient in delivering to residential --
making residential deliveries, which are an increasing part of the
traffic moving through both the Ground and the Express network,"
FedEx founder and Chief Executive Fred Smith said on a conference
call Tuesday.
FedEx's operating income declined less than 1% in the quarter
that ended May 31 to $1.32 billion due to lower revenues at its
Express air network and higher costs at its Ground business. FedEx
said those expenses were partially offset by increased U.S.
shipment volumes.
The company said expenses increased as it rolled out six-day
ground delivery and offered a voluntary employee buyout program for
U.S. workers. Executives said 1,500 people have accepted buyouts.
The company's recent decision to move to Sunday delivery will bring
further increased costs in the next year, the executives said.
The report came after U.S. markets closed. FedEx shares rose 1%
in late trading to $157.60. The stock has tumbled by roughly a
third over the past 12 months.
The company reported a fiscal fourth-quarter loss of $1.97
billion, including a large accounting charge for its retirement
plan, compared with net income of $1.13 billion in the year-ago
period.
Revenue increased about 3% to $17.8 billion. Revenue in its
ground and freight segments increased 11% and 5%, respectively.
However, revenue declined 1% for FedEx Express, its largest
business segment, to $9.5 billion.
FedEx warned of numerous looming challenges to its legacy
Express business, including global trade uncertainty and adding
more lighter e-commerce packages on its airplanes at lower margins.
The company is offering steep discounts to some large shippers to
try to get them to switch to its faster air shipping business.
FedEx said it hasn't changed its pricing strategy.
"As we go forward and things change, if we don't see any kind of
international growth, we will change our approach to the business,"
Mr. Smith said. "We don't have any sacred cows here."
The company's decision to abandon its contract with Amazon will
be a near-term headwind, chief financial officer Alan Graf said,
but as FedEx works to replace its resulting loss in volume and
improves its network, it expects to reverse that trend in future
years.
FedEx during the quarter become entangled in the U.S.
government's escalating trade conflict with China. The company
misrouted packages intended for Huawei Technologies Co. because of
changes FedEx made to comply with the Trump administration's
crackdown on the Chinese telecommunications-gear maker. In May, the
incident led Chinese officials to say they were opening an
investigation into FedEx, which apologized for the mistake.
The delivery giant's involvement in U.S.-China tensions further
intensified when it filed a lawsuit Monday against the U.S.
Department of Commerce, challenging federal requirements of FedEx
to enforce measures taken against Huawei. FedEx said it couldn't
inspect every package it handles to ensure the contents don't
violate U.S. export rules.
(END) Dow Jones Newswires
June 25, 2019 20:08 ET (00:08 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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