Fedex sees Q4 revenue tumble
Pandemic affects all aspects of company
The coronavirus rippled through all aspects of Fedex’s operations in recent months, leading to a drop in performance, the company reported in its fourth quarter earnings Tuesday.
Fedex made $17.4 billion in revenue for the 2020 fiscal year’s fourth quarter, down from $17.8 billion made the previous year’s quarter. Net income was an adjusted $663 million, well below $1.32 billion in 2019’s fourth quarter. The fourth quarter ended May 31.
“Though our fiscal fourth quarter performance was severely affected by the COVID-19 pandemic, I am extremely proud of the herculean efforts of our team members.” Fred Smith Chairman and CEO of Fedex in a statement
Fedex said the COVID-19 pandemic affected “virtually all revenue and expense line items” for the quarter. Earnings beat bleak Wall Street expectations, however, as the company reported adjusted earnings per share of $2.53 for the quarter, excluding some one-off expenses. That’s above the $1.42 estimate investment research firm Zacks had Tuesday morning. Company executives on Tuesday’s earnings call touted a surge in home deliveries and signs that valuable business-to-business volume is making a comeback. “Though our fiscal fourth quarter performance was severely affected by the COVID-19 pandemic, I am extremely proud of the herculean efforts of our team members,” said Fred Smith, chairman and CEO of Fedex, in a statement. “With safety as the first priority, these men and women provided essential transportation of critical supplies across the globe and delivered peak-level e-commerce volumes in the United States. As a result of the strategic investments we have made to enhance our capabilities and efficiencies, Fedex is well positioned to support and benefit from the reopening of the global economy.” Fedex stock was trading at $152.68 per share in after-hours trading, jumping after beating expectations. About a month ago, the stock traded at $129.71 a share.
COVID-19 leads to Fedex Ground spike
COVID-19 added another challenge for the Memphis-based logistics giant in 2020, a period company executives said would be a year of transition. The global pandemic led to COVID-19 cases and deaths among Fedex employees. It also sparked a decline in business-to-business volume and a surge in home deliveries. “While commercial volumes were down significantly due to business closures across the globe, there were surges in residential deliveries at Fedex Ground and in transpacific and charter flights at Fedex Express, which required incremental costs to serve,” Fedex said in its earnings release. Fedex Ground, known for economical home delivery shipments, has been much busier of late as more people ordered online amid coronavirus-related lockdowns. Ground’s average daily package volume leaped from 8.8 million the year-before quarter to 11.1 million this quarter. Ground’s growth hasn’t yet translated to improved profit margins investors are looking for. The company reported $6.4 billion in revenue and $673 million in operating income. That’s up from $5.3 billion and down from $810 million, respectively, the year-before quarter. Still, investments Fedex has made in Ground, such as expanding its network to seven-day home delivery, allowed the company to better handle the unexpected wave of residential deliveries, executives said. “Thank goodness that we had a seven-day network when this absolute tsunami of packages hit us,” Fedex CFO Alan Graf said. “Because it helped us manage and smooth the ability to deliver all those packages that we otherwise not would have had, so it was a positive in the quarter.”
Express lags, but helped by demand
Fedex Express, Fedex’s largest company, made $8.6 billion in revenue and $338 million in operating income this past quarter. That fell from the year-before quarter’s $9.5 billion in revenue and $766 million in operating income. Express has struggled the past several quarters amid weak global economic conditions and the costly integration of TNT Express. Average daily package volume at Express fell from 6.2 million the year-before quarter to 5.4 million this quarter. The commercial volumes Fedex Express leans on “hit bottom in the middle of April,” Fedex President Raj Subramaniam said, but Fedex has seen steady improvements in that volume since. Executives on the company’s earnings call Tuesday expressed optimism about the current need for air cargo space. With many passenger planes grounded, Fedex Express’ air shipping services have seen elevated demand, particularly for intercontinental shipments. Subramaniam said Express flight hours increased by 2.6% as the company delivered essential goods amid the pandemic. “Even as (passenger) aircrafts slowly come back online, they will be nowhere near where they need to be to meet what we think will be the demand as the European economy begins to awaken,” said Fedex Express CEO Don Colleran.
Capital spending to be reduced, COVID-19 causes charges
The company said Tuesday its capital expenditures for the 2021 fiscal year are expected to be $4.9 billion — $1 billion less than the year before. Fedex said “reduced vehicle replacement spending and delayed facility investments” were the primary drivers behind this. “We have reduced our planned capital spending where possible and have taken actions to mitigate the impact of the pandemic,” Graf said. “While the near-term outlook is unclear, we expect to benefit from the global recovery as we leverage the strength of our unmatched air network and U.S. residential capabilities, our yield management efforts and multiple initiatives to improve our financial performance.” Fedex saw a $125 million charge for COVID-19 safety measures, like personal protective equipment and additional cleaning services, for the quarter. The company also saw a non-cash impairment charge of $370 million primarily tied to Fedex Office, which had to temporarily close stores due to the coronavirus. Fedex said it is not providing a 2021 earnings forecast due to uncertainty surrounding the economy, and executives declined to elaborate on what they expect to see the next fiscal year. “As we’ve said all along, I can’t predict what the demand is going to be, so it’s going to be very difficult to answer any questions associated with (2021),” Graf said.