FedEx Express Segment’s Profits Increased despite Revenue Decline
Why FedEx Notched Gains after Its Fiscal 2Q16 Results
Results
For fiscal 2Q16, FedEx’s (FDX) Express segment reported revenues of $6.59 billion as compared to $7.02 billion in fiscal 2Q15, which was a 6% year-over-year decline. This decline occurred despite an increase in the base yields. The major factors adversely affecting revenues were currency impact and lower fuel surcharges.
However, operating profits increased by 26% to $622 million as compared to $492 million in fiscal 2Q15. This was a result of increasing base rates and the profit improvement initiatives implemented by management. As a result, operating margins improved by 2.4% to 9.4% in fiscal 2Q16.
Average daily volumes
The number of packages delivered by FedEx Express on a daily basis, US domestic package volumes increased by 1%. This was driven by growth in the US overnight package segment.
International export package volumes declined by 2.6%, and international domestic package volumes increased by 4%. This led to the total package volume growth of 1.1% to 4.3 million daily packages.
Yield
Yield is the revenue earned per package. US domestic package yield declined by 2%, due to the lower fuel surcharge.
International export package yield and domestic package yield also declined by 9% and 16%, respectively. As a result, total yield declined by 7% to $19.52 per package.
Outlook
FedEx Express forms 53% of the company’s revenue and accounts for 55% of its profits. FDX expects margins to improve further, adding to the company’s profitability.
FedEx forms the largest holding of the iShares Transportation Average ETF (IYT) of 12%. Similar companies included in IYT are United Parcel Service (UPS), Expeditors International (EXPD), and C.H. Robinson Worldwide (CHRW) with 8.2%, 4%, and 4.6% holdings in the ETF, respectively.
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