In the midst of what it is calling the busiest peak season it has ever experienced, FedEx reported net income of US$691 million in the second quarter of fiscal 2016, a 4.2 percent increase compared to the previous Q2, thanks, in part, to strong e-commerce business and the continuing effects of its restructuring program. Overall revenue for the integrator increased 4 percent to $12.5 billion.
The Express division saw total revenue fall 6 percent to nearly $6.6 billion in Q2, year-over-year, mostly due to the reduction in fuel surcharges and currency exchange rates. It also reported a 26 percent rise in operating income to $622 million in the same period.
An analysis by financial services firm BB&T found that FedEx Express’ profit improvement plan has led to the divison’s highest operating margin (9.4 percent) in the past nine years. “Management continues to focus on driving operating performance through pricing, volume and the profit improvement program in Express,” said BB&T. “Furthermore, management remains very confident the company will receive regulatory approval and close the TNT acquisition in 1H’16.”
On Monday, Dec. 14, FedEx handled more than 26 million packages globally, FedEx said, which was a higher-than-expected total, especially from e-commerce packages delivered via its Ground division in the Northeast United States. To meet this surge, FedEx said it has been able to divert much of the volume in the Northeast and that its sortation hubs have been able to absorb the extra loads, as crews continue to work in shifts around the clock through the holiday season.
In a statement after the earnings were announced on Dec. 16, FedEx CEO and founder Fred Smith placed some of the blame for the bottlenecks on shippers that made inaccurate estimates of e-commerce consumer demand. “The people that have the real problem in the e-commerce business, by and large, are those that view the transportation companies as some sort of utility or a vendor, and they make some really, really bad decisions,” Smith said.
Before the season began, FedEx had imposed rate increases to discourage the shipment of oversized packages, yet these larger items took up even more volume this year, compared to last year, accounting for about 10 percent of all home deliveries, the company said.
Average daily volume in the Ground division increased by 9 percent for the quarter, while total revenue rose by 32 percent to just over $4 billion. Some of this revenue growth was caused by the purchase of logistics firm Genco.