FedEx rides twin macro tailwinds to blowout quarter

E-commerce surge, reduction in aircraft belly space drive huge gains in FY 2021 first quarter

Image: FedEx

In December 2019, FedEx Corp. (NYSE:FDX) posted quarterly results that were so bad some thought the numbers were a misprint. On Tuesday, FedEx posted quarterly results that were so good that some may have thought the same thing.

The company continued its nine-month lift off the floor with first-quarter fiscal 2021 results that blew past the most bullish forecasts. The Memphis, Tennessee-based company posted diluted earnings per share of $4.72 on a GAAP basis and $4.87 a share on an adjusted, non-GAAP basis. Both numbers crushed median estimates of $2.54 a share of nine analysts polled on Barchart. 

In FedEx’s fiscal 2020 first quarter, diluted EPS came in at $2.84 on a GAAP basis and $3.05 on a non-GAAP basis. 

Revenue jumped to $19.3 billion from $17 billion, led by the FedEx Ground segment, where revenue rose to more than $7 billion from under $5.2 billion. Revenue at the FedEx Express air and international unit rose by $800 million. Revenue at the company’s less-than-truckload (LTL) unit, FedEx Freight, declined by about $79 million, but strong yield management led to a 41% year-over-year gain in operating income, FedEx said.


GAAP operating income rose to $1.59 billion from $980 million. Net income soared to $1.25 billion from $745 million, while GAAP operating margins rose to 8.2% from 5.7%. FedEx reaped a $130 million operating income windfall from an additional operating day.

FedEx shares, which rose fractionally during regular trading Tuesday, spiked nearly 8% in after-hours trading following the announcement. In pre-market trading Wednesday morning, shares traded at $258.41, up nearly $22 a share. In mid-March, shares traded below $90.

The world has changed dramatically since December, with the coronavirus pandemic upending transportation, supply chains and global consumer buying behavior. FedEx has benefited from two pandemic-related macro events: The explosion in e-commerce activity, and the grounding of most international passenger flights and the resulting lack of available belly space on those planes that carry a large portion of the world’s airfreight.

Before the pandemic, FedEx projected that U.S. parcel delivery volumes would hit 100 million a day by 2026. The pandemic and the e-commerce surge that ensued has effectively pulled that projection forward by three years, Brie Carere, the company’s executive vice president and chief marketing and communications officer, said on Tuesday night’s analyst call. The U.S. parcel market is expected to double by 2026, creating enormous opportunities for companies like FedEx, Carere said.


The reduction in international passenger flights since countries around the world closed their borders in late winter and early spring has left the market wide open for main-deck cargo carriers like FedEx. Cargo still accounts for the lion’s share of capacity on trans-Atlantic, trans-Pacific, and Asia-to-Europe trade lanes, Carere said.

Not surprisingly, demand for the company’s International Priority service, which offers global time-definite deliveries of goods weighing up to 150 pounds, typically in one to three business days, grew briskly in the quarter, with revenue rising to $653 million from $434 million a year ago.

Carere said a key part of FedEx Express’ strategy will be to “disintermediate” air freight forwarders that currently control large blocks of global air commerce through consolidation services. Forwarders own no planes and instead rely on airlines and air cargo carriers for capacity. They are historically the largest users of the passenger airlines’ bellyhold space.

The company is preparing for an unprecedented peak holiday shipping season that executives have dubbed the “shipathon.” Most of the peak traffic will move on FedEx Ground, which is expecting a slam-dunk double-digit surge in demand. Henry Maier, the unit’s president, said capacity constraints in the Ground network will be eased in part by the migration of 28 facilities operated by the company’s SmartPost service with the U.S. Postal Service (USPS) to FedEx Ground as the parent moves most of the USPS business in-house.

Asked by an analyst if his unit will be prepared for the peak avalanche, Maier replied, “we’ve been in peak since March.”

Under SmartPost, FedEx and other large users aggregate bulk parcel volumes bound for residences and induct the parcels deep into the postal network for last-mile deliveries. A couple of years ago, FedEx said it would shift that business to its Ground unit by the end of 2020.

FedEx declined to give full-year fiscal 2021 guidance, saying there is still too much uncertainty over future economic conditions. However, CFO Alan B. Graf, Jr., in his final analyst call before retiring after 30 years in the role, said that the company should do well over the balance of the year should current trends hold.


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