3 Key Questions Once FedEx Announces Record-breaking Fiscal Year

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3 Key Questions Once FedEx Announces Record-breaking Fiscal Year
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Logistics giant Logistics giant FedEx Corporation (NYSE:FDX) will disclose its fourth-quarter earnings next Thursday, anticipating a record-breaking fiscal year, which will see the company grow amid the coronavirus pandemic.

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Q1 2021 hedge fund letters, conferences and more

FedEx to Report Record Earnings in Q4

Since the start of the 2021 fiscal year, COVID-19 has tailed off in the U.S., but not so the demand for delivery services. FedEx and its competitors are seizing the higher rates and customer surcharges they have been applying due to their hotly-demanded planes, trucks, and vans in their fleets.

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As reported by the Associated Press, “Wall Street expects FedEx will report its profit soared to $4.98 a share in the March-May period, up from just $2.53 a year ago, before the COVID-19 pandemic caused a surge in consumer demand for shipping. Memphis, Tennessee-based FedEx forecast fiscal 2021 earnings of up to $18.10 a share.”

FedEx is part of the Entrepreneur Index, which tracks 60 of the largest publicly traded companies managed by their founders or their founders’ families.

Once the fourth-quarter earnings are announced on Thursday, company executives will shed light on how FedEx is planning for the future to keep the momentum going well into 2022. But there are question marks as to how to make this growth sustainable.

How Fast Will Passenger Travel Pick Up?

Air cargo capacity was cut down during the COVID-19 pandemic, as airlines grounded most of their passenger fleets. Jack Atkins, a FedEx analyst at Stephens, emphasizes that FedEx is following closely how quickly international flight capacity is returning to pre-pandemic numbers.

As reported by the Bureau of Transportation Statistics, U.S. airlines moved 41.2 million passengers in March –after seasonal adjustment– representing a slight improvement from the same month, last year. However, airlines remain far from pre-pandemic levels, as the statistic still represents an overall decline of 43% compared to the previous three years.

There is clearly less competition, which has paved the way for FedEx Express’s growth, but as the pandemic recedes, there is nothing to be taken for granted.

On the airlines’ side, flight bookings have rocketed after the success of COVID-19 vaccinations and the falling number of cases. This outlook has prompted authorities to lift travel restrictions as some U.S. airports have reported pre-pandemic traffic levels or higher.

FedEx’s COO Raj Subramaniam said FedEx Express anticipates a rise of air cargo pricing well into 2022 until supply improves. In this scenario, FedEx “will flex our networks appropriately” to adjust and if the trend continues –despite the peak in air travel bookings–FedEx Express will seize the opportunity.

How Has FedEx Tackled Operating Pressure?

Since 2020, FedEx has broken the record for the millions of items moving through its logistics network. The delivery process embodies an enormous challenge for on-time deliveries during the COVID-19 pandemic.

According to data from Convey, a delivery experience management company, FedEx is playing catch-up with United Parcel Service Inc. (NYSE:UPS) and the U.S. Postal Service in 2021 in terms of on-time delivery percentage: while rival UPS’ on-time percentage is at about 90%, “FedEx is still hovering in the low 70s,” said Convey co-founder Carson Krieg.

The explanation for this is that FedEx Ground maintains deliveries in-house, when once it would have handed them over to the U.S. Postal Service. However, Krieg says, such operational adjustment is a “short-term gamble for a long-term payoff,” granting more efficient delivery routes with FedEx’s service levels also bound to improve.

Ahead of Thursday, FedEx analyst Jack Atkins is expecting a strong earnings report as demand continues to skyrocket.

“With underlying demand trends strong and its network full, we believe FedEx continues to realize healthy pricing improvement as it works to drive improved profitability on its (business-to-consumer) traffic,” he said.

FedEx Freight and Its Adaptation in 2021

One front spearheading FedEx’s growth is FedEx Freight, an LTL (less-than-truckload) freight provider that represents a small portion of the company’s overall operations. Smaller than FedEx Express and FedEx Ground, it has contributed to FedEx’s overall turnaround through its significant growth in 2020.

Challenges have come along with the COVID-19 pandemic, however, due to the high demand for shipping capacity and increasing operational costs. To dampen the impact, the priority and economy services of FedEx Freight will be the subject of a $30-per-shipment peak surcharge for specific regions, as of July 5.

Still, Atkins asserted that, overall, FedEx has upside potential, “driven by robust demand, improving business mix and strong core yield trends across FDX's three primary business segments (Express, Ground, and Freight).”

According to sector publication FreightWaves, FedEx Freight has cut some 1,400 less-than-truckload customers to manage its capacity to guarantee on-time deliveries due to the increase in shipping volume.

FedEx Freight reported a 3% increase in its average daily shipments in its most recent quarter, compared to the year-before quarter. In the wake of such an upturn, the company has supported FedEx Ground with the delivery of 1.75 million shipments, hence alleviating the operational overload during the COVID-19 pandemic.

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