Many passenger airlines that carry freight in their bellies are being grounded by the coronavirus outbreak, and that could create an opportunity for cargo carriers like FedEx.
FedEx
Chairman and Chief Executive Officer Fred Smith said Tuesday that the delivery
giant is capable of handling the increased demand for its international
express-delivery services that’s arising because of the reduction in airliners.
Executives
also sounded upbeat about China’s recovery from the outbreak that started
there, and about demand from US consumers, millions of whom are now locked down
in their homes, either by choice, or government decree.
“For the
last couple weeks we have seen increased demand from Asia,” FedEx President Raj
Subramaniam said on a call with Wall Street analysts after the company reported
quarterly financial results. “We have seen strong demand for FedEx Ground here
in the US and especially home delivery, and even the commercial volumes have
been quite stable.”
The
company, however, doesn’t know what will happen next with the still-growing
Covid-19 pandemic, Subramaniam acknowledged.
The
comments came after the Memphis, Tennessee-based company posted surprisingly
strong revenue but a sharp drop in profit during the quarter that ended
February 29.
FedEx
also suspended its financial forecasts for the fiscal year, which ends in less
than three months, because of the uncertain impact of the virus outbreak.
It
joined a long and growing list of companies withdrawing earnings guidance, from
airlines and cruise lines to retailers such as Costco and Nordstrom and
consumer stalwarts, including Apple and Coca-Cola.
FedEx
said it earned $315 million in the latest quarter, a drop of 57 percent from
the same period a year earlier. The quarter spanned the peak Christmas delivery
season in the US and the early stages of the pandemic, especially in Asia.
Adjusted
to exclude certain costs related to the 2016 acquisition of a Dutch competitor,
FedEx said it earned $1.41 per share, matching the average forecast of 22
analysts surveyed by FactSet.
Revenue
rose to $17.5 billion from $17 billion, topping the $16.9 billion that the
analysts were expecting.
The
company’s most recent quarter was affected by a weaker global economy, higher
costs by expanding its FedEx Ground deliveries in the US to seven days a week,
a shift by customers to cheaper services, and last year’s cutoff of business
with Amazon.
FedEx
said it is managing capacity, retiring older planes and making changes in its
residential deliveries— cost-control steps that it had previously announced.
“We
continue to deliver for our customers and are ready to support increased demand
for our International Express export services due to the significant reductions
in intercontinental air capacity,” Smith said in a statement.
Shares
of FedEx closed up 4.9 percent, to $94.96. After the release of results, the
shares briefly rose in after-hours trading, but were little changed later on.
The shares have dropped 37 percent this year, while the
Standard & Poor’s 500 index has fallen 22 percent. AP
