FedEx posts strong fiscal fourth quarter and FY22 earnings gains

Fiscal fourth quarter earnings for Memphis-based freight transportation and logistics services bellwether FedEx issued late yesterday saw annual increases, driven by a sharp focus on revenue quality.

Quarterly revenue—at $24.4 billion—was up 8% annually, and operating income—at $1.9 billion saw a 7% annual increase. Diluted earnings per share—at $6.87—rose 27% annually, topping Wall Street expectations of $6.86. For the full fiscal year, revenue came in at $93.5 billion, for an 11% annual gain, with operating income at $6.87 billion.

FedEx officials said that fourth quarter operating income improved due to revenue management actions, which included the favorable net impact of fuel, for each of its transportation segments, and also lower variable compensation expense. And they added that these factors were partially offset by lower shipment demand, due to slower economic growth and supply chain disruptions, and higher purchased transportation and wage rates, too.

“Our fiscal 2022 financial performance was a result of our team's ability to adapt to a number of unexpected challenges and is a testament to the FedEx value proposition and the execution of our long-term strategy,” said Raj Subramaniam, FedEx Corp. president and chief executive officer, in a statement. “Our foundational investments have set the stage for a strong fiscal 2023. As we move forward, our focus will be on revenue quality and lowering our cost to serve. I am honored to lead our dedicated global team who enable FedEx to lead the industry from a position of strength.”

FedEx Express quarterly revenue—at $11.9 billion—increased 6% annually, with operating income up 20%, to $886 million The company said fourth quarter operating results saw improvements, due to revenue management actions, which included increased fuel surcharges. And it added that global volume softness, which were driven by pandemic lockdowns, geopolitical uncertainty, and slower economic growth contributed to partially offset annual gains.

FedEx Ground revenue—at $8.4 billion—headed up 4% annually, while operating income saw a 23% annual decline, to $849 million. The company attributed the decline in operating results to higher self-insurance accruals and increased purchase transportation and wage rates, which were offset by higher revenue per package that included increased fuel surcharges. And it added that average daily volume was down, due to yield management actions affecting the FedEx Ground Economy service.

On the less-than-truckload side, FedEx Freight revenue—at $2.7 billion—saw a 23% annual gain, with operating margin up 570 basis points to 21.8%, with the company saying the strong results were paced by at 28% increase in revenue per shipment, stemming from its ongoing commitment to revenue quality and also profitable growth.

Total quarterly package revenue—at $9.3 billion, was up 7% annually. And total U.S. package revenue—at $4.296 billion—saw a 10% annual gain, with total international export package revenue up 10%, to $3.959 billion, and international domestic down 10%, to $1.063 billion.

Total daily U.S. domestic package volume fell 8%, to $2.993 million and U.S. revenue per package, at $22.08, was up 20%. Total daily international export packages at 1.018 million fell 6% annually, with revenue per package up 13%, to $42.66.

For FedEx Freight, revenue per freight pound, at $1.30, was up 10%, with total average daily freight pounds, at 26,787 off 5%.

On the company’s earnings call, Subramaniam explained that FedEx has have worked through many network inefficiencies caused by labor shortages, adding that although wage rates remain higher than this time last year, they're stabilizing, while COVID-related conditions slowed global recovery and pressured second half performance.

“While Q4 volumes were down year-over-year and all our transportation segments compared to the extra ordinary fiscal year '21 we successfully implemented strategic actions that drove double-digit yield improvement across the board with Express composite yield per package up 20%, ground up 11% and freight yield per shipment up 28%,” he said. “We remain focused on revenue quality as one of the key levers to help offset the ongoing macroeconomic pressures and driving improved margins going forward.”

Jerry Hempstead, president of Orlando-based Hempstead Consulting, said that the FedEx results could be viewed as shocking, in that all of the FedEx domestic air products saw annual quarterly volume declines.

“The revenue was up substantially but that may not be sustainable,” he said. “The ground economy product was way off (down 24.5%), and only the ground domestic was up. Were it not for the favorable pricing environment, where they can increase what they charge with impunity, they would be in trouble.”