Thursday, June 23, 2022

Shipping giant Fedex Corp. ($FDX) filed its fiscal 2022 earnings release this week, and we were intrigued because Fedex’s operations can be a bellwether for all sorts of economic indicators, from inflation to supply chain issues to overall business activity.

Sure enough, the company delivered a few insights worth unpacking.

First (and perhaps most interesting) were Fedex’s segment disclosures about fuel costs and how those costs have affected ground shipping. Fedex provides a detailed breakdown of revenue by operating segment and of its operating expenses, so take a look at Figure 1, below.

Do you see it? Fuel costs — fifth line item in the Operating Expense category. Fuel costs for the spring quarter of 2022 soared 88 percent from the year-earlier period: $936 million to $1.76 billion. No other operating expense rose anywhere near as much. Ouch.

Those costs hammered Fedex’s ground segment so much that the company implemented a fuel surcharge, which did offset some of the pressure. Still, operating income for the Fedex ground segment fell by 23 percent, even as overall operating income rose 7 percent.

Fedex attributed that decline to higher self-insurance accruals — but also to increased purchased transportation and wage rates. So there’s our second interesting item: Fedex is battling inflation from its service providers and its own labor costs.

As you can see from Figure 1, purchased transportation costs rose 6 percent in the most recent quarter compared to the year-earlier period, while labor costs were mostly flat. But for the entire year, Fedex actually saw purchasing costs rise 11 percent, while salary and employee benefits rose 6 percent. (Fuel costs rose 77 percent for the whole year.)

Package Numbers

Fedex also reports some interesting non-financial statistics about package delivery. See Figure 2, below.

As you can see, Fedex is shipping fewer packages (11 percent fewer), but those packages are generating more revenue ($24.64 per package compared to $20.51 one year ago, an increase of 20 percent).

We at Calcbench aren’t entirely sure what that means, but then, we’re not analysts covering the shipping industry. We do know, however, that the data is there, and that Calcbench subscribers can easily find it, extract it, and model it; so that you can ask sharper questions when you’re on the next earnings call.

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