📦 What Do FedEx’s Delivery Woes Mean?

Costco's purchase limits return; Nike's warning.

Hey Global Investor! Here’s what you need to know before the US markets open.

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📦 FedEx: Minus The Express?

Aviation logistics and shipping giant FedEx’s (FDX) EPS missed analyst expectations even as revenue beat estimates. The company downgraded its full-year forecast, citing labor shortages and higher costs. It doesn’t seem like a Happy Holiday Season for FedEx this year!  (Tweet This)

The Great American Labor Shortage

US job openings had risen to a record high of 10.9M in July this year. The number of vacancies exceeding hires rose to 4.3M – the most since data collection started in 2000. Businesses around the country remain severely short-staffed to date.

Gig economy companies are wooing workers by dangling the carrot of higher wages. E-commerce giant Amazon, which is expanding its delivery network, is touting an average pay of $18 per hour.

The impact of these developments on FedEx has been immediate. Wages at some of its Express unit hubs have increased more than 25% compared to the previous year to stem employee turnover.

Still, the labor shortage has been hampering operations at the company. The FedEx Ground distribution center in Portland, Oregon, for instance, is operating only at 65% capacity. The ground unit handles most of the holiday delivery surge.

Instead of being in a position to handle the demand tsunami that’s undoubtedly coming its way, the distribution center’s operating volumes – a quarter of its operating volumes, to be precise – are being diverted to other locations.

Across the entire company, a staggering 600K packages every day (6.4% of its average daily volume) were rerouted during the quarter. This added up to a dour outlook for the year, which weighed heavily on investors’ minds.

Challenging Times

FedEx’s quarterly performance wasn’t too much of a cause for cheer.

Key Stats From Q1:

  • Revenue: $22B Vs $21.9B expected
  • EPS: $4.37 Vs $4.94 expected
  • Net Income: $1.19B Vs $1.28B (YoY)

FedEx lowered its full-year forecast EPS forecast to ~$20.25 from the earlier guidance of ~$21. The company refrained from committing to revenue guidance.

An increase in wage rates and dependence on third-party transportation services meant an incremental $450M increase in costs Y-o-Y. Add to it healthcare costs and other logistics costs, and the figure inches closer to $800M.

The management minced no words in admitting that these additional costs are likely to persist during the current quarter as well. In this challenging operating environment, FedEx is planning to raise its shipping rates starting January next year. FedEx Ground and FedEx Home Delivery rates are set to shoot up by ~6%; FedEx Freight costs will increase by ~8%.

These developments stand in stark contrast to UPS’ plans to hire 100K; the likes of Walmart getting into last-mile delivery; Amazon with its own last-mile service – the competition is intense, to say the least. FedEx has its task cut out.

It may have automated its distribution centers to the extent it could. But there are not enough staff members to deliver the packages to people’s doorstep, FedEx’s shareholders may very well be compelled to take a trading holiday!

Market Reaction
FDX ended at $228.92, down 0.07%. This, after a 9% drop on Wednesday – the most in a single day since March 2020. Shares are down 9.6% this year.

Company Snapshot 📈

FDX $228.92 -0.16 (0.07%)

Analyst Ratings (32 Analysts) BUY 78%  HOLD 22%  SELL 0%

Newsworthy 📰

Restrictions: Costco brings back purchase limits on toilet paper, cleaning supplies and more (COST +0.78%)

Woes: Nike warns on holiday delays, cuts full-year sales estimate (NKE -3.92%)

Resumption: McDonald’s restarts share buybacks as business recovers from pandemic hit (MCD +0.68%)

Later Today 🕒

  • Carnival Corporation Earnings (CCL)
  • 7:30 PM IST: Jerome Powell Speech

Today’s Market Terminology: Futures

Futures markets or futures exchanges are where financial products are bought and sold for delivery at some agreed-upon date in the future with a price fixed at the time of the deal

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