Fedex posts strong 1Q results amid demand surge
Fedex saw strong results driven by increased demand this past quarter, and the company plans to spend more to keep up with the growth in volume, the Memphis logistics giant reported Tuesday.
Fedex posted $19.3 billion in revenue for the 2021 fiscal year's first quarter, up from $17 billion the yearbefore quarter. Net income was an adjusted $1.28 billion, up 60% from fiscal 2020's first quarter. The quarter ended Aug. 31.
“Our earnings growth underscores the importance of our business initiatives and investments over the last several years, and, in many ways, the world has accelerated to meet our strategies,” said Chairman and CEO Fred Smith in a statement. “I would like to thank our team members whose efforts during this time have helped keep the world's health care, industrial and athome supply chains moving despite the challenges of the global pandemic.”
In a regulatory filing, Fedex said it saw “unprecedented demand for our residential delivery services, rivaling our peak holiday season traffic.” Fedex Ground's average daily package volume skyrocketed from 8.8 million the year-before quarter to 11.6 million this quarter, an increase of 31%.
Demand for Fedex's more profitable commercial delivery services “improved sequentially” as businesses continued to reopen amid Covid-19-related shutdowns, Fedex said.
Fedex Express, which leans on commercial shipments, made a major rebound in the quarter. Operating income at Express increased nearly 150% from the year before.
In a news release, Fedex said it's raising its capital spending forecast to $5.1 billion, an increase of $200 million, due to “initiatives to support increased volume levels.”
“While business demand improved in the first quarter, continued uncertainties cloud our ability to forecast full-year earnings,” said CFO Alan Graf in a statement. “However, we expect to continue to benefit from our strong position in the U.S. and international package and freight markets, yield improvement opportunities and cost management initiatives.”
Fedex reported adjusted earnings per share of $4.87 for the quarter, which smashed Wall Street expectations. Investment research firm Zacks predicted earnings per share of $2.54 earnings prior to earnings.
“This was the second straight quarter of solid execution from Fedex, which, paired with much strongerthan-expected shipment volumes, led to earnings well above expectations,” said Matt Arnold, an analyst at Edward Jones, in a note. “We believe Fedex is making the right moves by expanding its service offerings to benefit from e-commerce demand growth, including the addition of Sunday deliveries.”
Fedex's strategy to lean into the growth of online shopping hasn't changed, President and COO Raj Subramaniam said, pointing to initiatives such as Fedex Ground home delivery expanding to seven days a week. The timing of forecasted e-commerce trends, however, did.
“The growth that we expected to see over a period of three to five years happened in a period of three to five months,” he said.
Fedex riding high amid COVID-19 demand spike
The strong quarterly results come as Fedex stock has been trading at highs not seen since 2018. Industry analysts have been impressed by surging home delivery volumes at Fedex Ground, and Fedex Express is seeing newfound demand with the grounding of passenger planes limiting air cargo alternatives.
Fedex Express, Fedex's largest company, has been busier at its World Hub in Memphis and its pilots have encountered flight demand comparable to the holidays.
Express made $9.6 billion in revenue and $710 million in operating income this past quarter. That's up from the year-before quarter's $8.9 billion in revenue and $285 million in operating income.
Volume growth in Fedex's international priority and home delivery services helped bolster results, Fedex said in its release. International Priority provides time-definite delivery of imports and exports in one to three business days.
Average daily package volume at Express increased 5% in all from the year-before quarter.
Prior to a better-than-expected quarter in June, Fedex posted a string of disappointing results. A global trade slowdown hurt demand for Fedex Express' services, costs from integrating European courier TNT Express continued to mount and Fedex Ground saw profits shrink amid heavy investments.
The COVID-19 pandemic then accelerated trends Fedex executives said the company was already preparing for, such as the e-commerce boom.
Fedex Ground has been the primary beneficiary of the online shopping rush. It reported $7 billion in revenue and $834 million in operating income. That's ahead of $5.2 billion and $644 million, respectively, in the year-before quarter.
The company is expected to continue to benefit from its strong position in the U.S. and in international package and freight markets, Graf said.
Fedex stock was trading at $258.72 per share in after-hours trading. About a month ago, the stock traded at $206.64 a share.
Fedex: We're ready for vaccine shipments
Smith said in an earnings call that “detailed planning” is underway for the company to distribute COVID-19 vaccines at scale worldwide whenever they're ready to ship.
Adding to that, Subramaniam and Chief Marketing Officer Brie Carere touted the potential of Fedex Senseaware ID in providing real-time tracking updates for vaccine shipments. The lightweight device can be attached to critical shipments and send frequent notifications.
“Simply put, Fedex is the transportation and logistics provider with the network, technology, and knowhow to distribute vaccines when they're ready,” Subramaniam said.
Fedex has been talking with major manufacturers and customers in the health care industry, along with U.S. government agencies, to prepare for distribution, Fedex Express CEO Don Colleran said. Express is wellsuited to handle the mission with its global reach, he said.
"There's a very good chance that the raw ingredients are going to be made in one country, the manufacturing of the vaccines in another country, another region, and the consumption and need for this is global, and this is why we're uniquely positioned," he said.