Preview: FedEx quarterly profit likely boosted by rivals' pain

Yellow

19/09/2023 11:00

By Lisa Baertlein
       LOS ANGELES, Sept 19 (Reuters) - FedEx Corp  FDX.N 
benefited from misfortunes experienced by rivals UPS  UPS.N  and
Yellow  YELLQ.PK  during its latest quarter as the global
delivery firm continued slashing costs to match ongoing softness
in global e-commerce demand, according to company officials and
financial analysts. 
    Analysts broadly expect Memphis-based FedEx on Wednesday to
report higher year-over-year profit for the fiscal first quarter
that ended on Aug. 31. That is because some worried United
Parcel Service customers shifted packages to the FedEx network
ahead of the Aug. 1 expiration of that rivals' contract covering
about 340,000 United Brotherhood of Teamsters-represented
workers. 
    UPS executives last month said worried customers shifted 1
million packages per day to other providers, resulting in about
$200 million of lost sales. They estimated that roughly a third
of that volume landed with rival FedEx. 
    As one of the largest providers of less-than-truckload
shipping, FedEx also was in prime position to benefit from last
month's demise of Yellow, one of that sector's dominant players.
    Analysts generally expect the Yellow bankruptcy volume bump
to be more durable than the one from the UPS labor talks.
    "We believe UPS will be aggressive in trying to win back the
business," TD Cowen analyst Helane Becker said in a recent note.
    Nevertheless, FedEx could retain a portion of that business
after requiring new customers defecting from UPS to sign
agreements with terms of at least 12 months, Becker added. 
    The UPS customer gains would benefit FedEx's Ground segment,
while the Yellow business would bolster FedEx Freight.
    FedEx reset expectations roughly a year ago when it withdrew
its full-year profit forecast, citing a sharp downturn in its
business that resulted in a 21% drop in earnings for the fiscal
first quarter. The company since has been merging its separately
operating Express and Ground units as part of a $4 billion
cost-cutting push. 
    While operational challenges remain, "we expect Ground and
Express volumes to stabilize and gradually recover along with
overall e-commerce activity" during FedEx's fiscal year ending
May 2024, Morningstar Matthew Young said in a client note.
    

 (Reporting by Lisa Baertlein in Los Angeles; Editing by Will
Dunham)
 ((lisa.baertlein@thomsonreuters.com; +1 310-491-7241))