FedEx labor shortage affects quarterly earnings, earnings forecast

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A FedEx truck drives through downtown Los Angeles, California, United States on July 22, 2019. REUTERS / Mike Blake / File Photo

Sept. 21 (Reuters) – U.S. delivery company FedEx Corp (FDX.N) posted a 7% decline in quarterly earnings on Tuesday and slashed its full-year forecast after labor shortages impacted revenue and shipping speeds ahead of the major holiday high season.

Shares in the Memphis, Tennessee-based company fell 4.5% to $ 240.75 in expanded trading after FedEx said staffing issues from higher wage rates and overtime compared to a $ 450 million increase in costs compared to the previous year and higher expenses for third-party transports, services and shipping problems resulted.

“The impact of the constrained labor market remains the biggest concern for our business,” and was a major driver of the first quarter underperformance, FedEx chief operating officer Raj Subramaniam said on a conference call with analysts.

Most of the excess labor cost hit the company’s ground network, which is now redirecting 600,000 parcels a day to help address the issues arising from the labor shortage, executives said.

As an example, Subramaniam cited that its Portland, Oregon hub is only 65% ​​busy. That requires FedEx to pay higher wages and ship packages to other hubs – more time, package miles, and spending on outside help.

“We assume that the cost pressures due to network inefficiencies, such as the ones I just outlined, will continue to the top,” said Subramaniam. “Overcoming the challenges of staffing and retention is our top priority.”

FedEx announced that adjusted net income for the first quarter ended Aug. 31 was down to $ 1.19 billion, or $ 4.37 per share, from $ 1.28 billion or $ 4.87 – dollars per share last year.

Revenue increased 14% to $ 22.0 billion.

Following the report, FedEx lowered its earnings guidance for the full year, excluding items, to $ 19.75-21.00 per share. FedEx forecast earnings per share, excluding items, of $ 20.50 to $ 21.50 in 2022.

FedEx and competitor United Parcel Service Inc (UPS.N) are sprinting to hire vacation workers as the resurgence of COVID-19 infections caused by Delta variants threatens to spike demand for e-commerce deliveries during the Christmas season, if it does can easily double the parcel volume.

FedEx aims to hire 90,000 employees to handle the year-end Christmas shipments spike. 70,000 were hired last year and 55,000 in 2019.

Up-and-coming rival Amazon.com Inc (AMZN.O) is advertising an average wage of $ 18 an hour to expand its own delivery network. Amazon’s non-union delivery companies compete for labor with FedEx and its delivery partners.

UPS shares lost 2.5% according to the FedEx report.

At the close of Tuesday, FedEx shares were down 10% over the past six months, underperforming UPS shares, which was 19%.

Reporting by Lisa Baertlein in Los Angeles; Editing by Peter Cooney and Sonya Hepinstall

Our Standards: The Thomson Reuters Trust Principles.

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