FedEx Revenue Rises but Labor Shortages Continue to Dent Business

The cost increases were mostly centered in its Ground division, the primary unit for shipping e-commerce orders to homes. Operating income fell 13% from a year ago at Ground, which FedEx said accounted for $285 million of those elevated costs in the latest quarter.

FedEx President Raj Subramaniam said that cost pressure from labor shortages should subside going forward. Actions like pay premiums, more paid time off, flexible scheduling and tuition reimbursement is helping attract and retain workers, he said.

FedEx said it recently fielded 111,000 applications in one week for hourly positions, higher than any week in its history.

“This has led to appropriate staffing levels at peak,” Mr. Subramaniam said, referring to the current period of elevated shipping levels before Christmas.

FedEx has been struggling this year to attract enough workers to run its network properly. In recent months, the company has said that understaffed facilities meant that hundreds of thousands of packages each day had to be rerouted to other locations, adding cost and time to deliveries.

The carrier’s on-time performance has lagged behind that of its main competitors, United Parcel Service Inc. and the U.S. Postal Service, including during the two busy online shopping weeks around Thanksgiving, according to ShipMatrix Inc., a parcel analytics firm. FedEx said that third-party data doesn’t fully reflect its performance.

Chief Marketing Officer Brie Carere said that FedEx’s average time in transit has been just shy of 2.5 days during the peak season, and that she is pleased with the network’s performance so far.

Carriers like FedEx and

UPS

have been using higher rates to help offset rising costs and boost their top line. Shipping surcharges and increasing shipments from smaller customers, who generally pay higher rates, have helped carriers obtain that growth.

In the latest quarter, FedEx said that the average yield on a parcel shipped through its pricier Express division rose 20%, offsetting a 6% decline in the number of packages shipped daily. In its Ground unit, the average yield rose 9%, while the average daily shipping volume rose 4%.

Ms. Carere said she expects the year-over-year growth in November’s shipping volume to outpace December’s, as sales from large retailers shifted some holiday shipments earlier than normal.

Overall, FedEx posted a profit of around $1 billion, or $3.88 a share, compared with $1.23 billion, or $4.55 a share, in the same period a year earlier. Adjusted for items like restructuring costs and accounting adjustments related to its retirement plans, per-share earnings were $4.83, the same as last year.

Revenue rose 14% to $23.5 billion.

Analysts polled by FactSet expected the company to post earnings of $4.28 a share and $22.4 billion in revenue.

FedEx shares rose about 6% in after-hours trading. Its share price is down about 17% over the last 12 months through Thursday’s close, compared with gains of 22% and 26% for UPS and the S&P 500, respectively.

The delivery giant also launched a new $5 billion share repurchase program.

FedEx also updated its forecast for the fiscal year, returning to its original forecast of adjusted per-share earnings of $20.50 to $21.50, which it lowered in September.

The revised forecast assumes no additional business restrictions from the continuing Covid-19 pandemic. “We’ve been navigating through the pandemic and various twists and turns for two years now,”

Michael Lenz,

FedEx’s finance chief, said. “We’re confident in our ability to execute in this environment.”

Write to Paul Ziobro at [email protected]