FedEx Profits Squeezed, Acts Tough With Retailers

FedEx Corp has taken a tough stance with some e-commerce retailers as the behemoth in package delivery struggles to manage the huge surge in packages this holiday season.

Executives at FedEx, which saw quarterly profit squeezed by spending related to new facilities and staff to handle the volumes during the peak holiday shopping season, said this week they were pressing some clients for higher prices and dropped certain retailers during this year that would not agree to increased pricing.

CEO Fred Smith announced that profit margins for FedEx’s ground business, which dropped during the November quarter, will likely improve the remainder of this fiscal year, as the business adds additional hubs and places focus on increasing traffic in more of a profitable manner.

In the latest quarter for FedEx, profit had been flat from the same period last year as gains in revenue were offset due to more spending.

Expenses continued to outpace revenue in each of the ground and freight businesses during the quarter that ended November 30. In turn, the operating profit margin for the company was pushed down from 9.1% for the same quarter last year to 7.8%.

Executives said FedEx opened four more massive hubs for distribution and another 19 sorting stations that were automated, which helped the delivery giant handle over 1 million packages daily.

However, the cost for opening and the staffing of the facilities pushed down profits. The CFO of the company, Alan Graf said that e-commerce continues to be the driver of growth in revenue, which provides for superb opportunities and at the same time significant challenges.

Shares at FedEx, which this year have increased 33% and last week reached a new record high, were down 3% in trading after hours on Tuesday. One analyst said that it was obvious that preparing for peak season had been more expensive than the company had expected.

Executives cited that the majority of the $60 billion FedEx annual revenue is not delivering packages and other customers in the e-commerce world.

For the quarter ending in November, FedEx posted a profit of just over $700 million equal to $2.59 per share, in comparison to $691 million equal to $2.44 per share the same time last year.

Revenue increased by 19.2% to end the quarter at $14.91 billion helped by the acquisition of TNT Express, which was bought by FedEx for $5 billion.

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