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How FedEx's (FDX) Ground Unit Will Fare in Q3 Earnings?

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·4 min read
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FedEx Corporation’s FDX Ground segment, which accounts for more than 30% of its total revenues and around 59% of its operating income, is expected to be boosted by higher revenues when FDX reports third-quarter fiscal 2022 results (quarter ended Feb 28, 2022). This is FDX’s second-largest revenue-generating unit after the Express division.

FedEx Ground offers a low-cost, day-certain service to any business address in the United States and Canada besides residential delivery in the United States through its FedEx Home Delivery service.

Highlights of FedEx Ground’s Q2 Performance

FedEx Ground revenues increased 13% year over year to $8,264 million for the period under consideration, owing to higher revenue per package, driven by service mix and pricing initiatives. Operating income came in at $481 million, decreasing 13% year over year. Segmental operating results were hurt by increased purchased transportation costs, higher wage rates and network inefficiencies due to staffing shortages. Operating results were also negatively affected by higher expansion-related costs.

Labor Scarcity Likely to Have Hurt Ground’s Q3 Performance

Supply-chain disruptions are likely to have dented the operating performance of the Ground unit of FedEx in the fiscal third quarter akin to the fiscal second quarter. Omicron-induced labor woes are also likely to have dampened results. Escalated labor costs and staffing crunch-led inefficiencies apart from high expansion-related expenses are likely to have induced this downside.

E-commerce & Strong Holiday Sales Likely to Have Boosted Revenues

Despite the likely impact of the above-mentioned headwinds, e-commerce growth is likely to have aided the segment’s revenues in the to-be-reported quarter. Notwithstanding the reopening of economy as opposed to the last-year scenario, online shopping continues to be a favorite among consumers. The strong demand scenario in the holiday season might have boosted segmental sales. The Zacks Consensus Estimate for revenues in the fiscal third quarter at the FedEx Ground unit, which handles e-commerce deliveries for many retailers, stands at $8,843 million, indicating a sequential increase of 7%. Uptick in revenue per package is also likely to have bolstered revenues. The consensus mark for second-quarter revenue per package at the Ground unit currently indicates an 1.8% increase from the year-ago quarter’s reported figure.

Overall Earnings & Revenue Projections

The Zacks Consensus Estimate for earnings of FedEx in the fiscal third quarter is currently pegged at $4.70 per share, suggesting a 35.45% increase from the prior-year fiscal quarter’s reported figure. For quarterly sales, the consensus mark of $23.58 billion suggests a 9.64% rise from the year-earlier fiscal quarter’s reported number.

FedEx currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our Take

While high labor costs due to omicron-induced labor crisis are likely to be reflected in the Ground segment’s results for the fiscal third quarter, soaring package volumes, led by e-commerce growth, are expected to have bumped up the revenues of the unit.

Let’s take a look at some other transportation companies, top lines of which benefited from e-commerce growth in their recent earnings releases.

Akin to the last few quarters, upbeat demand for e-commerce-related package deliveries boosted United Parcel Service’s UPS fourth-quarter 2021 results. UPS raised shipping prices on the back of buoyant e-commerce demand.

UPS, currently carrying a Zacks Rank #3, reported fourth-quarter 2021 earnings (excluding 7 cents from non-recurring items) of $3.59 per share, beating the Zacks Consensus Estimate of $3.11. The bottom line jumped 35% year over year with strong performances across all segments.

Quarterly revenues at UPS came in at $27,771 million, outperforming the Zacks Consensus Estimate of $27,179.6 million. The top line increased 11.5% year over year, driven by higher shipping rates and upbeat e-commerce demand.

Atlas Air Worldwide Holdings AAWW is the parent company of Atlas Air and Polar Air Cargo, which operate a fleet of freighter aircraft. AAWW is supported by strong demand for air freight amid the coronavirus pandemic. The boom in e-commerce trends amid the current scenario is a catalyst. AAWW currently carries a Zacks Rank of 3.

Atlas Air’s fourth-quarter earnings (excluding $1.50 from non-recurring items) of $7.05 per share outperformed the Zacks Consensus Estimate of $6.11. Driven by solid e-commerce demand, AAWW reported revenues of $1,163 million, outpacing the Zacks Consensus Estimate of $1,096.8 million. Per AAWW’s president and CEO John W. Dietrich, “Our strategic focus on express, e-Commerce and fast-growing markets will continue to drive our business forward.”


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