Higher costs hit FedEx profits

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FedEx Corporation said its operating results for the first quarter ended August 31 were negatively affected by an estimated $450 million year over year increase in costs due to a constrained labor market and availability, despite an increase in revenue from $19.3 billion to $22bn. The higher costs were only partially offset by higher package and freight yields, increased international export express shipments and lower net fuel prices.

In addition, while commercial ground and US domestic express package volume increased year over year, continued supply chain disruptions have slowed domestic parcel demand compared to the company’s earlier forecast.

Chairman and chief executive officer Frederick W. Smith, said: “While we expect these conditions to continue near-term, we expect a gradual improvement in labor availability combined with our proactive revenue management actions to mitigate the ongoing impact of these headwinds on our results and position us for earnings growth in fiscal 2022.”

“The execution of our strategies continues to drive higher demand for our services, despite the disruptive impact of the pandemic to labor availability and global supply chains,” he added. “I am very proud of our team members around the world who continue to transport lifesaving vaccines and deliver urgently needed supplies to those affected by natural disasters like Hurricane Ida and the recent earthquakes.”

FedEx Freight first quarter operating results improved primarily due to the continued focus on revenue quality and cost management. FedEx Freight reported a record operating margin of 17.3% for the quarter, with average daily shipments growing 12% and revenue per shipment increasing 11%.

“The FedEx teams continue to diligently deliver for our customers under unique and challenging circumstances,” said president and chief operating officer, Raj Subramaniam. “The current labor environment is driving inefficiencies in the operation of our networks and significantly impacting our financial results. For the peak season ahead, service remains our focus and we are making investments in resources and capacity to meet our customer’s needs.”

FedEx Express, FedEx Ground and FedEx Home Delivery shipping rates will increase by an average of 5.9%, while FedEx Freight rates will increase by an average of 5.9% to 7.9% and, from November 1, 2021, a fuel surcharge will be applied to FedEx Express (U.S. domestic package and freight services), FedEx Ground and FedEx Freight shipments.

The company is reducing its earnings outlook to reflect first quarter results, which were lower than the company’s June forecast. As conditions during the first quarter were more challenging than anticipated and are now expected to extend longer, the revised outlook for the remainder of the fiscal year also reflects this.

FedEx has incurred and expects to incur significant expenses through fiscal 2022 from theintegration of TNT Express but does not expect to incur these as part of its continuing operations. These include professional and legal fees and other operating expenses.

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