📦 Is FedEx Done With Delivery Pains?
Nike, Micron results beat estimates.
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📦 FedEx: Painful Delivery?
Logistics and shipping behemoth FedEx (FDX) reinstated its original forecast for 2022. There were serious questions about FedEx’s ability to meet a reduced projection, given that it was facing labor issues and higher costs. Those troubles seem to be now consigned to the rearview mirror. (Tweet This)
Labor Pains
You order a gift for your loved ones for Christmas well in advance. Still, it doesn’t get delivered on time because the package is stuck somewhere on a ship anchored offshore. Even if the package did get offloaded at the port, the sheer volume of such packages that need to be cleared means parcel delivery companies have been under a major crunch and getting crushed.Â
The perfect storm of the pandemic, the world plagued with supply chain hassles, and labor shortages have affected companies large and small in the US. Delivery companies have had to dangle the carrot of higher wages to lure people to work for them and ensure last-mile delivery.
FedEx had a particularly tough time. Back in September, its FedEx Ground distribution center in Oregon was operating only at 65% capacity due to labor shortage. Close to 6.5% of the average daily volume nationwide had to be rerouted as a result, which meant higher costs, and in turn, lower guidance for the year. Needless to say, shares tanked.Â
The company also got pummeled by competition. There was a time when UPS and FedEx, along with the US Postal Service, controlled about 95% of last-mile deliveries of third-party parcels. Now, Amazon, Walmart, Target, Uber, and Lyft, among others, have jumped in on the action. Amazon’s grey and blue delivery vans now deliver more packages in the US than FedEx does!
So among these dark clouds, where is the silver lining?
Passing The Parcel
In order to make up for the labor shortage and higher costs, FedEx increased the prices it charged customers. That allowed the company to do better than expected.
Key Stats From Q2:
Revenue: $23.5B Vs $22.5B expected
EPS: $4.83 Vs $4.23 expected
Back in Q1, the company incurred additional expenses to the tune of $450M for rerouting packages. In Q2, things were more or less quiet, with the costs only seeing a marginal increase of $20M. The company is confident that rerouting will be a thing of the past soon as they've doubled down on hiring more people. FedEx added 60K front-line workers since the end of Q1 to its rolls.
FedEx's Express business grew its top line by 12% Y-o-Y and contributed to nearly half the overall revenue. The company's Ground and Freight business grew 13% and 17% respectively Y-o-Y. FedEx Express primarily uses planes and other vehicles to transport packages, while Ground uses a truck fleet. FedEx Freight handles bulk shipping orders within the company.
Notwithstanding those new hires, FedEx struggled to make timely deliveries compared to peers. During November 14 - December 4, FedEx's on-time performance stood at 85.7% of packages. On the other hand, UPS clocked in at 96.4%, while USPS stood at 95.1%.
Courtesy of passing the higher costs onto its customers, FedEx reinstated its full-year EPS guidance, which it had to cut in Q1. It now expects to earn $20.50 - $21.50 per share compared to the lowered forecast of $19.75 - $21 per share. Also in the works is a share buyback program worth $5B, the first $1.5B of which will be completed by early next summer.Â
This upbeat outlook aside, uncertainties abound for FedEx. The customers might be OK with some increase in prices, but they'll be keen to switch allegiance if it gets to a point they cannot bear any longer. With the pandemic continuing to push the daily cases above the 150K mark, the company has to watch unvaccinated workers closely.
Therefore, it's not surprising that FedEx's shares haven't really done anything this year. Instead, investors can only hope that the company gets its act together in a timely manner, given its own tagline, "The World On Time."
Market Reaction
FDX ended at $245.55, down 1.97%. Shares are down 3% this year.
Company Snapshot 📈
FDX $245.55 -4.94 (1.97%)
Analyst Ratings (33 Analysts) BUY 73% Â HOLD 27% Â SELL 0%
Newsworthy 📰
Boost: Nike shares rise as earnings, sales top estimates, fueled by strong North American demand (NKE +3.81%)
Investigation: Two US senators seek probe into amazon.com labour practices (AMZN -1.73%)
Earnings: Micron results beat forecasts, sees chip shortage easing in 2022 (MU +6.79%)
Later Today 🕒
General Mills Inc. Earnings (GIS)
FactSet Research Systems Inc. Earnings (FDS)
BlackBerry Ltd. Earnings (BB)
Neogen Corporation Earnings (NEOG)
Apogee Enterprises Inc. Earnings (APOG)
Rite Aid Corporation Earnings (RAD)
Today's Market Terminology:Â Margin Trading
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