News / Bullish FedEx reports 'strong' Q3 results, despite the heavy cost of Covid

© Tom Samworth

FedEx has announced a “strong” set of third-quarter results, primarily due to volume growth in US domestic residential packages and a 41% increase in international priority package volumes, led by Asia and Europe.

But the quarter was mired in poor weather, with operational problems caused by heavy snow in the US, cutting operating income in February by $350m.

Q3 revenues rose year on year from $17.5bn to $21.5bn, while adjusted operating income rose more than 230%, to $1.06bn and net income nearly tripled, from $371m to $939m.

But CFO Mike Lenz said the growth had been partially offset by four factors.

“First, higher variable incentive compensation expenses of $485m, including a $125m special bonus for global frontline team members at FedEx Express; second, lower revenues and higher costs due to significant weather events; third, the estimated impact of having one fewer operating weekdays, which was approximately $150m; and lastly, consolidated direct Covid-19-related costs of approximately $60m.”

And he added: [This] does not capture the many accommodations we continue to make across all our operations for the safety of our employees and to comply with various regulations and guidelines.”

The poor weather hit the company’s largest facilities, in Memphis, Indianapolis and north Texas. But there was much medium-term good news for the company,

“At FedEx Express, we expect elevated pricing for at least the next 12 months,” said president Raj Subramanian. “We know, however, that these prices are not sustainable in the longer term, and we will flex our networks appropriately as commercial capacity returns into the market.”

Brie Carere, chief of marketing, added that global air cargo capacity would “remain constrained through the end of calendar year 2021, and we expect passenger capacity to recover between 55% and 75% of its pre-Covid level, with a full recovery not anticipated until 2023 or 2024.”

Ms Carere added that Asia Pacific outbound had recovered to pre-Covid levels, while “Europe outbound is expecting a partial recovery by the end of 2021 and a full recovery sometime in 2023”.

She said: “With these projections, demand trends will continue to favour freighters and integrators. We are confident in our ability to maintain elevated yields for at least 12 months. With e-commerce driving significant growth internationally, we will increasingly utilise peak surcharges in our international business.”

In Europe, FedEx is undergoing some restructuring, with the integration of TNT continuing and set for completion in spring 2022.

“April will be a big month as we prepare to roll out a set of new service capabilities for our customers,” said Mr Subramaniam. “Our Paris hub will be our main express hub in Europe, with Liege serving as Indianapolis does in the US. We remain focused on optimising the network and strengthening our capabilities to drive upside in Europe for years to come.”

You can see FedEx’s full third-quarter results here.