FedEx Braced for a Holiday Crush That Didn't Come

By Paul Ziobro 

FedEx Corp. said some of its largest retail customers shipped fewer packages during the holiday season than forecast, after the delivery giant had ramped up spending and staffing in anticipation of a crush of deliveries.

"We provided capacity that went unused," FedEx Chief Financial Officer Alan Graf said on a conference call Tuesday.

The outcome hurt FedEx's bottom line during the fiscal third quarter ended Feb 28. While revenue surged 18%, helped by higher rates and more packages shipped, overall margins fell amid a 30% rise in fuel costs and investments to keep up with e-commerce growth.

Both FedEx and rival United Parcel Service Inc. are struggling to keep pace with the dramatic growth of e-commerce. While more people doing their shopping online is bringing added volume into their networks, both are spending heavily to build out package-sorting centers and automating facilities to handle the extra deliveries more profitably.

Both chains are also eyeing the ambitions of Amazon.com Inc., which is grabbing retail share and slowly building its own delivery network. While that could cut into FedEx's e-commerce business, the company says that 85% of its operation is business-to-business deliveries.

"We think we have a not-great risk of being disrupted," FedEx Chairman and Chief Executive Fred Smith said.

FedEx backed its outlook for the fiscal year, and implied a healthier fiscal fourth-quarter as the carrier now adjusts fuel surcharges weekly instead of monthly so it can better respond to fluctuating costs. The company cut its capital spending outlook for the year by $300 million to $5.3 billion, as it reduces spending in its ground business.

FedEx shares rose 2.5% in late trading to $196.70.

Over all, third-quarter profit rose 11% to $562 million, or $2.07 a share. Excluding integration and restructuring costs tied to the acquisition of TNT Express, profit fell to $2.35 a share from $2.51 a share. Revenue rose 18% to $15 billion.

The Memphis-based company said the integration of the Dutch parcel delivery company TNT Express, acquired last year for $4.8 billion, is progressing smoothly and would add between $1.2 billion to $1.5 billion to the operating income of its Express division by fiscal 2020.

--Maria Armental contributed to this article.

Write to Paul Ziobro at [e-mail]

(END) Dow Jones Newswires

March 21, 2017 19:59 ET (23:59 GMT)

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