FedEx announces Q1 results

FedEx announced Q1 results for its 2016 fiscal year with revenues of $12.3bn representing an increase of 5.1% year-on-year. The company also recorded an operating income of $1.14bn for the same period, an increase of 7.7%. Consequently, FedEx’s margin stood at 9.32%, up from 9.09% for the same quarter in the previous year.

FedEx reported operating results rose compared to last year due to sharply increased operating income at FedEx Express, the benefit from one additional operating day at each of the company’s transportation segments and the continued positive impacts from the company’s profit improvement programme. These benefits were partially offset by higher incentive compensation accruals, higher self-insurance reserves and operating costs at FedEx Ground, and lower-than-anticipated volume at FedEx Freight. Fuel had a slightly negative net impact to operating income. FedEx noted that costs related to the pending acquisition of TNT Express were immaterial during the quarter.

For Q1, the FedEx Express segment reported a 4% decline in revenues from $6.86bn to $6.59bn. Operating income was reported to be $545m, up 45% from $377m during the same period last year. Operating margin stood at 8.3%, up from 5.5% during the same period last year. The decline in revenues was attributed to lower fuel surcharges and unfavourable exchange rates. Despite this, US domestic package volume grew by 1% driven by growth in deferred box and overnight envelope. US domestic revenue per package declined by 3% due to lower fuel surcharges, although this was partially offset by strong base rates. FedEx International Economy volume grew by 4%, while FedEx International Priority volume decreased 5%. International export revenue per package decreased 7%, as lower fuel surcharges and unfavourable currency exchange rates were partially offset by higher rates and improved package weights.

For the same period, FedEx Ground reported revenue of $3.83bn, representing a 29% increase year-on-year. Operating income for Q1 was reported to be $537m, down 1% from $545m year-on-year. Operating margin stood at 14%, down from 18.4% for the same period last year. FedEx attributed the increase in revenues to the inclusion of GENCO results, the recording of FedEx SmartPost service revenues on a gross basis versus the previous net treatment, and higher ground revenue per package and volume. FedEx Ground average daily volume, including FedEx SmartPost shipments, grew 4% in the first quarter due primarily to continued growth in FedEx Home Delivery. FedEx Ground yield increased 11% due to the recording of FedEx SmartPost revenues on a gross basis, higher dimensional weight charges and increased rates, partially offset by lower fuel surcharges.

Operating income decreased slightly due to increased self–insurance reserves, and higher-than-expected operating costs due in part to larger package sizes. These factors more than offset the benefits from higher revenue and one additional operating day. Operating margin decreased primarily due to increased self-insurance reserves, the inclusion of GENCO results and the change in FedEx SmartPost revenue reporting, which collectively reduced year-over-year operating margin by 4.0 percentage points.

The FedEx Freight segment reported revenue of $1.60bn, representing a minor change from the $1.61bn in revenues recorded during the same period last year. FedEx Freight also reporting an operating income of $132m, down 21% year-on-year. Finally, operating margin stood at 8.2%, down from 10.4% for the same period last year.

FedEx Freight attributed these results to Less-than-truckload (LTL) average daily shipments declining 1% due to weak industry demand. LTL revenue per shipment was down 1% as higher rates from yield initiatives were more than offset by lower fuel surcharges. Operating results declined primarily due to salaries and employee benefits expense outpacing lower-than-anticipated volume.