By Laura Stevens
FedEx Corp. reported that holiday peak shipping volume in
November was lower than what retailers predicted, resulting in a
slight dip in margins for its ground business as it spent more
money to prepare for the holidays.
The company's results come as delays at the ports in the West
Coast have disrupted the flow of goods to retailers during the peak
holiday shopping season. Goods that would normally clear the ports
in two to four days are now taking a couple of weeks, FedEx
executives said, putting retailers scrambling to restock items in
time for the holidays in a crunch.
"The slowdown in the West Coast ports has been a much bigger
deal than people think, and a tremendous amount of inventory was
simply not put through the ports in the time frame that the
retailers had expected," FedEx Chairman Fred Smith said in a call
with analysts. Customers should expect to see a lot of items out of
stock, he added.
The results fell short of Wall Street earnings expectations
partially because the company--with its fleets of more than 600
aircraft and 90,000 vehicles--didn't benefit much from falling oil
prices. FedEx executives said that the drop in oil prices won't
have a major effect on future earnings.
Shares of the company fell 4.6% in midday trading to
$166.33.
Total profits for the delivery giant increased 23% to $616
million, or $2.14 per share. Analysts polled by Thomson Reuters had
expected per-share earnings of $2.22. Ground margins for the
quarter ended Nov. 30 dipped to 15.2% from 15.4% as the company
invested in expanding its operations to handle the holiday surge
but shipped fewer-than-expected packages. Revenue rose 5% to $11.9
billion from a year earlier.
Last year, FedEx and rival United Parcel Service Inc. were hit
by a combination of bad weather and a surge in online sales that
helped contribute to an estimated 2 million delayed express
packages on Dec. 24, according to data from software tracking
developer Shipmatrix Inc. This year the companies' on-time rates
have been much higher, the firm said.
And even as traditional retailers have improved their Internet
sales, Mr. Smith said they're still playing catch up when it comes
to processing those orders. That resulted in backlogs in November,
and some major retailers were unable to ship those orders, Mr.
Smith said.
"So we are seeing a great deal of that traffic now moving into
the December time frame," he said.
Executives noted that--as usual--e-commerce trends were
something of a surprise. The company hasn't yet experienced the
same spikes in volume this year as previous years because holiday
shopping has been spread out over a longer period. For example,
retailers like Wal-Mart Stores Inc. started their holiday
promotions earlier and spread out Black Friday deals over the many
days.
"Over the last several peak seasons we have regularly observed
situations where volume hasn't always come where we expected it or
come when we expected it. But one thing has been certain: It always
comes," added Henry Maier, head of FedEx Ground.
Revenue at the company's ground segment increased 8% to $3.06
billion compared with the year-earlier period, while operating
income rose 6% to $465 million.
The port delays helped boost volume in the company's air-express
division, though executives noted that this was a temporary rather
than systemic shift.
In addition to higher volumes, the company's air express
division also benefited from the company's continued implementation
of its restructuring program, which includes modernizing its air
fleet and completed buyouts of 3,600 employees. Gains were
partially offset by higher aircraft maintenance expenses.
Operating income in the express division increased 36% to $484
million, compared with the same quarter last year. Revenues
increased 3% to $7.02 billion.
FedEx executives also touted their recent acquisitions of two
companies that will help the delivery giant to increase its
presence in the growing e-commerce space. The company on Tuesday
said it acquired privately held Bongo International, adding a
provider of services that enable international e-commerce orders
and shipments. The deal came a day after FedEx agreed to buy
logistics provider Genco, which specializes in returns. Executives
said they would disclose the prices for the acquisitions in coming
months.
Chelsey Dulaney contributed to this article.
Write to Laura Stevens at laura.stevens@wsj.com
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