you may also enjoy
A week after FedEx issued a surprising pre-release for its fiscal Q1 2023 (period ending August 31), the company officially issued its financial details on Sept 22.
Total company revenue increased 4.5% to $23.0 billion. Still, total operating income declined 15% to $1.19 billion on an as-reported basis and down 17.4% to $1.49 billion on an adjusted basis showing some signs of challenges faced by the carrier.
Volumes declined in all three divisions, but FedEx Freight, the smallest division in terms of revenue, reported the strongest gains in operating income, up 67% to $651 million, despite average daily shipments declining by 4.9%.
FedEx Express noted a huge misstep, reporting a 14.8% decline in operating income of $1.19 billion despite a 1.5% increase in revenue of $11.1 billion. Average daily volumes declined 11.4%.
Meanwhile, FedEx Ground reported revenue up 6.3% to $8.2 billion, while operating income increased 3.4% to $694 million. Average daily volumes declined 4.4%. Despite the revenue increase, it was approximately $300 million below company forecasts according to its pre-release from last week.
Operating income increased primarily due to yield improvement, including a 12% fuel and home delivery volume growth. However, according to FedEx CFO Mike Lenz, these factors were partially offset by higher operating expenses, including increased purchase transportation and other operating expenses. Yield, including surcharges, grew 27%.
Indeed, surcharges, e.g., peak season surcharges, and higher rates, have benefited FedEx as it focuses more on revenue management versus volume growth. "Revenue growth was driven by higher yields from higher fuel surcharges, base rate increases, and improved volume mix… We are ready to deliver for peak. We will remain nimble in leveraging peak surcharges to balance demand and the capacity of our network as we monitor volume trends," FedEx Executive Vice President and Chief Customer Officer Brie Carere told analysts on Sept 22.
Carere further noted that FedEx has successfully repriced renewal contracts and negotiated "strong increases."
Repricing of contracts is coming ahead of a 6.9% General Rate Increase (GRI) for 2023 announced in FedEx's earnings announcement.
Yes, it is the largest GRI increase in the company's history, and the reason for such an increase, according to FedEx, is inflation. A new remote area surcharge and peak residential pricing in the US will be introduced in January. Stay tuned for an analysis of FedEx's 2023 GRI.
As part of its overall cost restructuring announced before the earnings call, about $1.1 billion in savings will come from FedEx Ground operating expenses via dock productivity initiatives, network and line haul efficiencies, and reduced liability costs. It will also reduce Sunday operations at several FedEx Ground locations.
Too many customers will likely not miss the reduction in Sunday operations. According to a Pitney Bowes survey, only 41% of survey respondents claim Sunday package delivery is important to them, while 79% don't expect Sunday to be a delivery day.
As for the contractor drama that's circled FedEx Ground this year, when asked on the analyst call for an update about the situation, FedEx CEO, Raj Subramaniam replied, "As far as the perceived issues on the Ground side, let me just assure you, first of all, that the service levels at FedEx Ground are now reached pre-pandemic levels, and we are very well positioned for peak. Of the 6,000 contractors, we have 96% of them have signed the peak incentive program. And to put that in perspective, this is running ahead of where we were last year…This is much more of a perception issue than reality, and we are well positioned for peak, and we have the support from our team."
Ok then…how UPS will respond when they announce their Q3 earnings (period ending Sept 30) in October will be highly anticipated. Just as a reminder, UPS CFO Brian Newman noted in the company's Q2 earnings that it expects volume growth rates to improve slightly in the second half of the year compared to the first half and that revenue per piece will continue to increase year-over-year, but at a slower rate than in the front half of the year. In addition, the company expects about $600 million in compensation expenses associated with its union contract to go into effect in August.
Similar to years past, UPS will likely follow FedEx's lead in announcing a 6.9% GRI for 2023.
No matter the market or the changes we see in the parcel carrier or freight carrier space, Intelligent Audit's freight audit, business intelligence and analytics, and machine learning technology will provide shippers with the data they need to navigate the constantly changing markets in shipping. Reach out to Intelligent Audit today to learn how we can keep your transportation spend right on your budget.
Set up a call with one of our experts to discuss how Intelligent Audit can help your business uncover opportunities for cost reduction and supply chain improvements through automated freight audit and recovery, business intelligence and analytics, contract optimization, and more.
