FedEx starts the new fiscal year on a strong note

FedEx began its fiscal year on a strong note with revenue for the first quarter August 30, up 6% to $11.7bn. In fact revenue was up in all three of its reporting divisions – Express, Ground and Freight. In addition, operating income was also up for the three divisions. Higher volumes and increased yields were attributed to these gains.

Its “profit improvement initiatives” for FedEx Express appear to be paying off. For the quarter, revenue increased 4% and operating income increased 35%. US domestic volumes increased 5% while international package yields improved.

Meanwhile, the Ground division noted an 8% increase in revenue to $2.96bn for the quarter. Operating income increased 13% to $545m. Average daily volume was impressive, increasing 6% from the same period last year with revenue per package rising 3%. Increase in rates and higher residential and fuel surcharges contributed to the rise in revenue per package. However, SmartPost average daily volume declined 10% due to reduced volumes from a “major customer” rumoured to be Amazon. But, because of rate increases and improved customer mix, revenue per package increased 10% for its SmartPost product.

FedEx’s LTL division, FedEx Freight also noted good gains with revenue increasing 13% to $1.61bn with operating income up 70% to $168m. Average daily shipments increased 11%.

While volumes were impressive, revenue gains were very good thanks in part to rate increases and additional surcharges. In fact, the day before its earnings announcement, FedEx announced that it will raise US rates for express, ground and home-delivery shipments by an average of 4.9% on January 5, 2015. It will also increase rates for SmartPost. The January 5 rate announcement is in addition to FedEx’s previously announced pricing changes based on dimensions versus weight which is set to be implemented on the same date. The implications are not yet clear but it appears that this could have a negative impact for ecommerce-related packages. It should be noted that UPS also plans to switch to dimensional pricing in 2015 and will likely announce rate increases within the next few months.

Overall, an impressive start to fiscal year 2015 – revenue, profit and volume gains in all divisions. The outlook is very optimistic for the company. FedEx expects a record peak season and as such it has been in discussion with its retail and e-retail customers throughout the year to plan its operations accordingly. It also plans to hire 50,000 seasonal positions, up from the 40,000 from last year.

In the press release, Frederick Smith, FedEx Chairman, President And Chief Executive Officer, noted, “FedEx is off to an outstanding start in fiscal 2015, thanks to very strong performance at FedEx Ground, solid volume and revenue increases at FedEx Freight and healthy growth in US domestic volume at FedEx Express.”