The rise in online buying this year has been a boon for business at FedEx (FDX). Historically, the shipping company has been a bellwether for the broader economy, but this year there seems to be a disconnect between the brawn of the earnings and the broader economy. Consumer spending is up marginally but FedEx Corp.'s results far exceed the gains as evidenced by a 76 percent increase in fiscal-second-quarter earnings posted today. FedEx credits the strength to gains in growth in its ground shipping and freight segments, both of which could be traced back to higher online sales. Frederick W. Smith, the company’s Chief Executive confirmed the connection in his press release while adding that demand for residential delivery has risen.
International priority package volume declined alongside the increase for U.S. group shipping services as the economy in China, where much of the demand was coming from has slowed. FedEx has had a key role in transportation in China, responsible for shipping goods, from clothing to electronics from China. The recent decline in Chinese shipping is worrying for some who have viewed China as a global engine to an otherwise slowing economy. For the quarter ending Nov. 30, FedEx said profits reached $497 million, or $1.57 a share, an increase from $283 million, or 89 cents a share, roughly $1.16 a share in the year earlier period. The results fell toward the top of the company’s September earnings prediction of between $1.40 and $1.60 a share. Revenue for the quarter grew by 9.9 percent to reach $10.59 billion. Operating margins, as a result of increased hires to handle the influx of packaging and new technical infrastructure for tracking, grew from 4.9 percent to 7.4 percent.
The biggest improvements were made in the express-shipping segment, the largest top line contributor. Revenue added close to 10 percent for the period reaching $6.58 billion. There was also a 30 percent improvement in the segment’s operating profit. Earnings can be expected to continue to grow into the coming quarter as high December traffic and a longer-than-ever holiday shipping season, the result of more stores offering free shipping for longer, could help FedEx continue to improve its outlook through the season. The company forecast earnings of $1.25 to $1.45 a share for the next quarter.
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