News / FedEx fights back in Q3 – but now 'every 24 hours, something new happens'

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FedEx announced better-than-expected third-quarter results yesterday, reporting $17.5bn in adjusted revenue, but after net income plummeted, has suspended its financial forecasts.

It said operating results declined – by more than half – owing to “weaker global economic conditions, including the impact of coronavirus, higher self-insurance accruals, an “unfavourable variable incentive compensation comparison”, increased FedEx Ground costs from expanded service offerings, the loss of business from a large customer, a continuing mix shift to lower-yielding services and a more competitive pricing environment.

“These factors were partially offset by the benefits from volume growth at FedEx Ground, an additional operating weekday, increased yields at FedEx Freight and the shifting of Cyber Week into December,” it added.

Adjusted net income fell 53%.

FedEx did not put a precise number on how much the coronavirus may have cost, but said it expected to see dampened demand in Europe as shops close and factories start to slow production, and it was replicating the strategy it used in China last month.

However, demand in China is now strengthening, said Brie Carere, chief marketing and communications officer, with production back at about 65%-75%.

“In February, we managed the influx of shipment requests to China amid limited capacity by implementing a temporary peak surcharge for US outbound freight shipments and adjusting our transit commitments to China to maximise our capacity utilisation.

“We have also dynamically adjusted spot prices to and from China.” She added that the market had rebounded this month.

“With the urgent need for stock replenishment and with air capacity shortage in the market, we believe demand will stay elevated. We continue to adjust transit times and spot prices specifically for China outbound to manage demand profitably.

“We are now employing the same strategies in other parts of the world that have helped us manage demand and capacity constraints in China, including transit time extensions, dynamic spot price management, and will also leverage peak surcharges for specific lanes and periods of time, as they are required.

“For our intra-European business, we continue to run our air and ground networks. Due to the lockdown of some areas and enhanced border controls, we are dynamically adjusting our network and, in some lines, we’ve extended transit times.”

FedEx said that with the pace of change in the market, business was very uncertain.

“We are really managing this business almost on a day-to-day basis,” said outgoing chief financial officer Alan Graf. “We certainly think we know what’s going to happen in the next week. But I have to tell you, every 24 hours something new happens.

“Europe had been doing well. Now it seems that Europe and UK are starting to shut down a little bit more and the demand is probably going to be less than I would have told you it was three days ago.

“I do know that we have great plans in shape from the cost side to go either way, and that’s the best we can tell you right now because it is just so uncertain out there.”

The company has “frozen and reduced its overheads”, and said technology and efficiencies would also take out costs.

Mr Graf added that FedEx was also cutting costs by “managing capacity, retiring our oldest and least-efficient aircraft, integrating TNT Express and lowering our residential delivery costs by having FedEx Ground deliver FedEx SmartPost and certain day-definite FedEx Express packages”.

You can see the earnings call transcript here, and the full results here.