Higher labor costs cited as lower profits

FedEx said on Tuesday its revenues increased in the last quarter, but a shortage of workers, higher labor costs and disruption from under-staffing have cost the company hundreds of millions. dollars and contributed to lower profits.

In short, labor market disruptions linked to the COVID-19 pandemic mean that the company currently does not have enough people to do the job. And business leaders have said they expect the problems to persist for some time to the point that they reduce the earnings outlook for the year.

“The impact of constrained labor markets remains the biggest issue facing our business, as it is with many other businesses around the world, and has been the main driver of our below expectations in the first quarter,” Raj Subramaniam, president and chief operating officer of the company. officer, said on an appeal over the results.

Labor shortages mean the company is paying higher wage rates to hire and keep people, he said. And FedEx also has to spend extra money to deal with shortages: for example, hiring third parties to help transport items.

Subramaniam described a case where understaffing increases costs. The FedEx Ground hub in Portland, Oregon has about 65% of the workers it should have to handle the normal number of packages. So the company is diverting 25% of normal parcel volume to other locations for processing, he said.

It is ineffective. That means more kilometers driven and more hiring of third-party transportation, he said. And he said the Portland case is just one example of similar issues popping up across the business.

“Across the FedEx Ground network, more than 600,000 packages are rerouted every day,” he said.

The company expects labor shortage issues to persist during the peak holiday season, Subramaniam said.

In total, these labor shortage issues cost the company $ 450 million in the quarter, most of that amount to FedEx Ground, he said.

He said these issues also affect the quality of service. Analysts have already documented an increase in the number of late packages.

To address the issues, the company is taking several steps, including targeted wage bonuses, especially for week shifts, Subramaniam said. It is also increasing tuition reimbursement and sponsoring a National Hiring Day this Thursday as it seeks to hire 90,000 people ahead of peak season, he said. It also communicates with customers to improve peak season planning and expand network capacity to handle more packages.

He said the company hopes these measures, along with the gradual improvement in the labor market, will improve conditions for the company over time.

FedEx Profits in Numbers

Strong demand helped FedEx generate $ 22 billion in revenue for the first quarter of fiscal 2022, up from $ 19.3 billion in the previous year quarter.

In the three-month period ended Aug.31, the Memphis-based global shipping company posted adjusted net income of $ 1.19 billion, from $ 1.28 billion. one year earlier. Expressed as adjusted diluted earnings per share, this represents $ 4.37.

Analysts had forecast quarterly sales of $ 21.8 billion and earnings per share of $ 4.96, according to investment research firm Zacks.

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FedEx Express is the largest company under the FedEx umbrella and uses planes and other vehicles to transport packages – its revenue reached $ 11 billion, up from $ 9.6 billion in the quarter of l ‘last year.

Its operating profit fell to $ 567 million from $ 710 million a year ago.

Revenue for FedEx Ground, a company that primarily transports goods by truck, reached $ 7.7 billion, from $ 7 billion in the previous year quarter. Operating profit fell to $ 671 million from $ 834 million.

FedEx Freight, a FedEx company that handles bulk transportation, saw its revenues drop from $ 1.8 billion to $ 2.3 billion.

In this segment, operating profit improved from $ 274 million to $ 390 million.

FedEx Earnings Outlook Declines for Fiscal Year 2021-22

FedEx’s current fiscal year runs from June 1, 2021 to May 31, 2022.

FedEx has reduced its earnings outlook for the remainder of the current fiscal year, “as conditions in the first quarter were tougher than expected and are now expected to last longer,” the company said in a statement.

FedEx had forecast earnings per share of between $ 20.50 and $ 21.50 for the year. He has now reduced that number to between $ 19.75 and $ 21.00. (These figures exclude certain accounting adjustments, some of which relate to a pension plan.)

The profit result comes as FedEx is about to enter peak holiday season. This period of time was from the day after Thanksgiving until New Years.

But now, with the ability of online retailers to start promoting sales before Thanksgiving, and consumers being urged to shop early for Christmas due to delays, the new high season includes all of November and December, Satish said. Jindel, founder of the company ShipMatrix.

FedEx expects demand for its services to increase sharply; it plans to hire thousands of people to meet this demand amid increased competition for workers; and punctuality has already declined, analysts said.

On Monday, FedEx announced further increases in the price of packages that will take effect in the coming months. During the call for results, company executives spoke of a favorable pricing environment – in other words, high demand for services means the company can safely raise prices and earn more money. money without losing too many customers.

Daniel Connolly covers FedEx for The Commercial Appeal and welcomes advice and comments from the public. Contact him at 529-5296, [email protected], or on Twitter at @danielconnolly.

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