FedEx’s business continues to thrive more than a year into the COVID-19 pandemic, the company announced in its earnings report Thursday, but executives also flagged hiring challenges that have hobbled service levels.
FedEx made $22.6 billion in revenue for the 2021 fiscal year’s fourth quarter, up 30% from the year-before quarter. The company posted an adjusted net income of $1.36 billion, well ahead of last year’s $663 million.
“I am optimistic about the future of FedEx as we continue to innovate for our customers and meet strong demand for our global transportation network and capabilities,” said FedEx Chairman and CEO Fred Smith in a statement.
FedEx’s fourth quarter ended May 31. It marked the end of a strong fiscal year for the Memphis logistics giant, in which its outlook improved significantly from the early days of the COVID-19 pandemic.
Business-to-business shipping traffic has rebounded, while business-to-consumer volume has surged as more home deliveries are being made. FedEx also surpassed 100 million COVID-19 vaccine dose deliveries, a small but meaningful piece of its recent volume.
“For fiscal 2021, we delivered record financial results while also recognizing the valuable contributions by our team members,” said Chief Financial Officer Michael Lenz in a statement. “We expect continued strong momentum in fiscal 2022, and our investments are focused on the areas of greatest growth and highest returns, like e-commerce, to position us for sustained long-term growth in earnings, cash flows, and returns.”
For the future, FedEx is pushing “accelerated capacity expansion, fleet and facility modernization, and increased automation,” the company said in a news release.
Labor shortages concern top executives
Volume growth helped fourth-quarter results, FedEx said, but the company took a hit from costs to address demand and higher labor rates. Total operating expenses increased 23% from the year-before quarter.
The U.S. labor market has been challenging for FedEx over the past few months, Smith said on the company’s earnings call, hurting the company’s hiring efforts and forcing tweaks in its network to deal with the shortage of employees.
FedEx President and COO Raj Subramaniam said limited labor availability has contributed to FedEx delivery service levels that don’t meet the company’s expectations.
“The inability to hire team members, particularly package handlers, has driven wage rates higher and creates inefficiency in our networks as we use overtime to cover open shifts and route volume around known constraints, just as a few examples,” he said.
Salaries and employee benefits increased 21% in fiscal year 2021 from the year before.
The company is “taking bold actions across the business to address service issues,” Subramaniam added, including continued investments in employees, capacity and technology. He said over the next two or three months, FedEx expects the hiring situation to improve.
Smith said although the challenges in the U.S. labor market have “begun to abate,” delivering a successful peak holiday shipping season “will require additional flexibility and creativity” by FedEx’s employees.
Express, Ground and Freight all improve results
The services of FedEx Express, FedEx’s largest company, have been in high demand as cargo capacity on passenger planes remains limited. The company made $11.3 billion in revenue for the quarter, an increase of 32% from the year before. Operating income jumped from $338 million to $737 million.
FedEx Express specifically saw “exceptional growth in international export and U.S. domestic package services” as it handled record fourth-quarter volume, FedEx said. Chief Marketing Officer Brie Carere said capacity constraints benefiting Express aren’t expected to subside any time soon.
“We expect air cargo capacity to remain constrained through at least the first half of calendar year (2022),” she said. “Recovery will be slow, potentially episodic, and a full recovery is not anticipated until 2024.”
FedEx Ground, meanwhile, has reaped the benefits of the e-commerce boom, handling significantly higher package volumes and hiring delivery drivers in record numbers. The company made $8.1 billion in revenue versus $6.4 billion the year-before quarter. Its operating income leaped 64% to $1.1 billion.
Strong growth in commercial shipments and revenue per package, or yield, helped FedEx Ground’s results in the fourth quarter, FedEx said.
Average daily package volume for FedEx Express and FedEx Ground increased by 20% and 9%, respectively, from the year-before quarter.
FedEx Freight’s revenue increased 38% to $2.2 billion, while its operating income more than doubled. FedEx attributed the company’s record earnings “to the continued focus on revenue quality and profitable growth.”
FedEx shares were trading at $290.75 per share in after-hours trading. The stock price has climbed since March’s earnings report, but it’s still hovering below its 52-week high of $319.90.
FedEx reported adjusted earnings per share of $5.01. Investment research firm Zacks had predicted $5.04 in earnings per share for the quarter as of Thursday afternoon.
On the earnings call, Smith and Subramaniam also addressed the mass shooting in April that killed eight FedEx employees at a company facility in Indianapolis.
“Our most heartfelt sympathies and condolences remain with the families, team members and friends of these individuals,” Subramaniam said. “They will forever be members of the FedEx family.”