The Express segment saw weak performance for the quarter. During its earnings call to discuss results, President and COO Dave Bronczek said “macroeconomic weakness and trade uncertainty” contributed to revenue challenges in the segment. To address the weakness in its international business, FedEx pursued cost-reduction initiatives including a voluntary employee buyout program, capacity reductions in its international air network, limited hiring, and reduced discretionary spending.
For FY20, FedEx anticipates operating income in its Ground and Freight arms to increase due to higher revenues. At FedEx Express, macroeconomic weakness and trade uncertainty, continued mix shift to lower-yielding services and a strategic decision to not renew a customer contract with Amazon will negatively impact operating income.
FedEx is also pursuing growth in new areas, following the integrator’s decision to break off its express relationship with Amazon earlier this month. While FedEx maintains it has not changed its pricing strategy in response to the end of its express relationship with Amazon, a FedEx spokesperson promoted its two-day air option for SMEs as a “very good value” to customers. FedEx also announced this week that it is expanding its relationship with other retailers, including Dollar General.
During the call, Chairman and CEO Fred Smith also addressed speculation that the company’s decision to sue the U.S. Department of Commerce (DOC) this week was due to FedEx’s and the DOC’s recent fight regarding the integrator’s accidental diversion of several Huawei packages shipped from the United Kingdom to the United States earlier this month. Smith said that the case actually stems from issues several years in the making. He said that it is an issue of U.S. import and export controls, and how this burden is placed on the carrier, rather than an issue of contraband items. FedEx, he said, like any other carrier, works closely with U.S. federal agencies to comply with federal safety standards. However, given the massive volume of packages the company processes, it cannot be expected to “police” these goods, Smith said. While it is not yet certain how the case will evolve, it is a landmark case in the making for logistics providers across the board. In the meantime, however, the company does not anticipate any change from usual operations.
To more closely examine the results by segment:
FedEx Express: On the Express side, revenues decreased 0.8% y-o-y during the quarter to $9.5 billion, while operating income decreased by 11.7% to $766 million. Meanwhile, package volumes were up for most segments except U.S. Overnight Envelope, where average daily volumes declined 0.4% during the quarter, and the International Priority segment (covering international intra-country operations), where volumes were 0.2% lower, y-o-y. Total package volume increased 4.9% and year-to-date increase of 3.8%.
FedEx Ground: FedEx’s Ground segment revenue rose 10.9% to $5.32 billion during 4QFY19, as operating income flatlined at to $810 million. Both average daily package volumes and yield per package increased, by 8.4% and 2.2%, respectively.
FedEx Freight: The Freight segment also recorded y-o-y growth during the quarter, with revenue climbing 5.0% to $1.95 billion and operating income rising 15.5% to $194 million.