The growth of e-commerce contributed to an 8% increase in average daily FedEx Ground volume, but severe winter weather exacted a heavy toll on the company’s profitability.
FedEx said its ground segment grew revenues by 10% to slightly more than $3 billion as average daily volumes grew by 8% during the company’s third quarter ended Feb. 28. The company delivered more than 300 million packages via ground during the period for average daily volume of roughly 4.8 million packages. Despite the increased volume due to growth in home delivery and business to business services, the ground segment’s profits came under pressure. Operating income grew 2% to $467 million, but operating margins contracted to 15.7% from 17%.
Results for the ground segment benefitted from late Thanksgiving holiday which pushed package volume associated with Cyber Week into the FedEx’s third quarter results during the current fiscal year whereas Cyber Week fell in the second quarter during the company prior fiscal year.
The favorability was significantly offset by an estimated $40 million year-over-year impact on operating income from weather, as well as increased network expansion costs and the negative net impact of fuel.
“Historically severe winter weather significantly affected our third-quarter earnings,” said chairman, president and CEO Fred Smith. “On days when the weather was closer to normal seasonal conditions, our volumes were solid and service levels were high. The FedEx strategy of maintaining separate express and ground networks with multiple hubs proved to be an especially important advantage for our package customers during this quarter’s severe weather and peak shipping.”
Even so, FedEx said third quarter profits totaled $1.23, well below the $1.46 analysts expected, and flat with the prior year’s third quarter profit of $1.23 when adjusted to exclude a one time restructuring charge.
Total company revenues grew 3% to $11.3 billion and operating income increased 9% to $641 million as a stronger profit performance at the company’s larger Express segment offset challenges with the ground division.