FedEx reported improvements in revenues and profits in its fiscal third quarter and isn’t expecting a material impact on performance as a result of the Middle East conflict.
The express giant saw revenues for the quarter ending 28 February increase by 8.1% year on year to $24bn, operating income was up 4.6% to $1.35bn and net income was up 16.5% to $1.1bn.
The Federal Express segment’s operating results improved during the quarter, driven by higher US domestic and International Priority package yields, continued cost savings from transformation initiatives and increased US domestic package volume.
These factors were partially offset by higher variable incentive compensation expenses and wage rates, the financial impacts of global trade policy changes, increased purchased transportation rates, and the MD-11 groundings.
The grounding of the company’s MD-11F fleet led to an adjusted operating income “headwind” of $120m during the quarter as a result of higher operating costs and lost revenue, it said.
FedEx expects further headwind of $55m during the current quarter as a result of the grounding, but hopes to have the aircraft flying by the end of the period.
All MD-11F aircraft were grounded following the fatal crash of a UPS MD-11F after taking off from Louisville, US on 4 November.
The firm’s international quarterly export volumes registered growth for the first time during the fiscal year.
“This is an impressive achievement given the sustained declines on the transpacific lane due to the dynamic global trade environment,” said executive vice president and chief customer officer Brie Carere.
“This international growth is a direct result of our targeted strategy to reroute capacity to our Asia-Europe and intra-Asia lanes, both of which delivered significant revenue growth, along with continued growth in US international outbound and our European region.”
As result of trade tensions, the company reduced transpacific outbound by approximately 15% of its own capacity and 25% of third-party capacity during the quarter, with much of its own capacity relocated to Asia-Europe and intra-Asia.
Meanwhile, the FedEx Freight segment operating results decreased during the quarter due to increased costs associated with the company’s planned spin-off, lower shipments, and higher wage rates, partially offset by increased yield.
The company added that overall net income includes a tax benefit of $99m from the recognition of certain foreign tax loss carryforwards.
Middle East update
On the impact of the conflict in the Middle East, FedEx said that its outlook assumes a “modest headwind” tied to business impact in the region.
FedEx Corporation president and chief executive Raj Subramaniam described the Middle East as a “relatively small part” of total revenues and added that the company would monitor trends.
Carere said that at the peak of the crisis, 20% of air cargo capacity had come out of the market, but this had now levelled off and was now down to about 10%.
“We have adjusted our pricing accordingly,” she said. “We do have demand surcharges in place today.”
In response to rising jet fuel prices as a result of the conflict, Carere added that FedEx’s fuel index was updated weekly and was “doing its job”.
“It will cover and ensure that we maintain profitability,” she said.
