FedEx falls hard in its latest earnings report

FedEx reported a surprising fiscal second-quarter decline in revenue and operating income during Tuesday’s earnings call in which CEO Fred Smith described the quarter (period ending November 30) as an anomaly.

Smith reminded those on the call of the shorter holiday season that required planning and expenses to handle volumes that would fall during the company’s fiscal third quarter. He also highlighted continued headwinds in manufacturing and global trade. However, according to Smith, the company expects to see improvements moving forward. Hopefully, among the improvements we’ll finally also see the complete integration of TNT, which was acquired in 2016.

The Ground division was the only division to report positive year-over-year revenue, up 3.4%. Revenue for the Freight division declined 3.9% and Express, the largest division, declined 5.4%.

Within the Express division, package revenue was down 3.8% with U.S. Domestic revenue down 4.4% and International Export package revenue down 3.3%. Freight revenues were down 10.6%. The revenue decline for Express was primarily attributed to the loss of business from a large customer, macroeconomic weakness and trade uncertainty, lower fuel surcharges and unfavorable exchange rates. In addition, one less operating day contributed to the decline in the first half of 2020.

Note the statement above—the loss of business from a large customer—assumed to be Amazon. Evidently, Amazon was a larger customer of FedEx than we were led to believe.

FedEx’s second quarter operating income should perhaps cause some raised eyebrows, as operating income for Express was down 62.5%, Ground was down 42.0% and Freight was down 4.7%. Indeed, fiscal second quarter was a quarter of costs outpacing little, if any, revenue gains.

Average daily volumes were also disappointing, although the Ground division reported a 3.5% increase in volumes. Freight volumes, on the other hand, were down 6%. For Express, Freight volumes were down 3.7% while Package volumes were down 1.5%. Within Package, a positive, International Export package, volume increased 2.7%, but U.S. domestic was the weak spot with a 4.1% decline. FedEx’s loss of a large customer (Amazon) evidently played a role in its U.S. Domestic revenue and volume declines.