) ground business growth tarnished stronger-than-expected fourth
quarter profits on the Tuesday morning earnings call. The
transportation holding company brought in net income of $550
million, which was largely overshadowed by the fact that FedEx's
express business saw average daily package volumes fall by
While there are numerous reasons why customers may have
avoided sending packages in recent months, none are more
prevalent than the fact that shipping costs have increased and
to do so as gas prices climb.
FedEx is not the only traveling express mail carrier that has
taken a hit following the flux in fuel cost. United Parcel
) experienced a rough first quarter earlier this year, as profits
were weak and shares fell due to slowed global exports.
With difficulties posing problems for both UPS and FedEx in
terms of earnings, business restructuring is becoming more and
According to UPS CEO Scott Davis, the mail carrier reached an
agreement with TNT Express (
) in March which laid out a merger between the two companies.
United Parcel Service agreed to purchase TNT Express for $6.8
billion in an effort to put itself on the map overseas as the
largest European shipper.
Conversely, FedEx will likely have to pull a stunt of similar
magnitude in the future.
"The shipper is expected to detail more of its restructuring
of the express segment in October. The express business' shipping
volumes and margins slipped during the recession, and lagged
behind recoveries in FedEx's other businesses," Forbes reported
earlier this morning.
Accordingly, research firms see meaningful profitability
improvement on the horizon for the company if FedEx stays on task
with plans for domestic express makeover.
Deutsche Bank stated yesterday that three specific areas where
improvement should be made are the permanent retiring of old and
inefficient aircrafts, the movement of deferred product into high
margin ground network, and right-sizing the express network for
more realistic volumes overall.
While management hinted back in March at developing strategies
that will reposition the company in a more favorable light, it
appears that analysts and investors will get their way. Come
fall, traders and customers can expect a FedEx restructuring that
will more-than-likely combat escalating fuel costs and increase
FedEx is trading around $90 today, up approximately 4%
year-over-year, while UPS is trading near $78.50, up
approximately 13% year-over-year.
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