FedEx bottom line responds to departure of Amazon volumes, trade friction in 1Q earnings

FedEx reported net income down 10.8% to $745 million for the first quarter of its 2020 fiscal year, which ended on Aug. 31, on revenue that was flat at $17 billion.

In addition to feeling the impact of slowing global trade and the ongoing growing pains related to the integration of TNT Express, FedEx also took a hit from its decision to severe air and ground ties with Amazon during the quarter.

Company chairman and founder Fred Smith told analysts during a call to discuss the results that, while Amazon represented only a “small proportion” of the company’s revenues, near-term profits would be negatively affected. In a change from past years, FedEx now includes Amazon in its competitive sphere, along with UPS, DHL and USPS, according to Smith.

Long term, however, FedEx maintains that new customers will more than make up for Amazon’s volumes as the average number of daily e-commerce shipments in the United States doubles from 50 million today to 100 million per day by 2026. Indeed, the bulk of the company’s non-aircraft capital expenditures target the e-commerce segment through automation and facility upgrades. FedEx forecasts capital spending of $5.9 billion in FY2020 and expects similar outlays in FY2021.

High-value express shipments aren’t the only targets for FedEx – the company is working to become more competitive in the short-haul ground segment to better target retail-to-home and other local deliveries. Apart from expanding six- and seven-day service, FedEx also announced it would in-source SmartPost volumes by 2020. Currently, SmartPost volumes are dumped into the USPS’ network for final-mile delivery. Already, FedEx Ground was the bright spot for the quarter with revenue up 7.9% to $5.1 billion on average daily package volumes that were 7.5% higher.

Still, the company’s largest division, FedEx Express, reported operating income down 26.5% to $285 million on revenues that were 3.0% lower at $8.9 billion. Average daily volumes were up a slight 0.6%. Responding to lower demand for domestic and international express, FedEx will be making adjustments to its post-peak freighter fleet. For more on FedEx’s planned fleet adjustments, see coverage in our sister publication Cargo Facts here.

FedEx now forecasts earnings of $11.00 to $13.00 per diluted share before retirement plan adjustments and excluding TNT Express integration expenses.

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Charles Kauffman

Charles Kauffman is the Senior Editor of Air Cargo World Magazine, and the publication's sister newsletter, Cargo Facts. Charles holds a BA in International Studies from the University of Washington, and an MA in International Relations from Shanghai Jiao Tong University. He speaks Mandarin and Spanish.