Last year, the Memphis-based carrier company benefited from a $116 million reduction in operating expenses resulting from the government's compensation for the air traffic shutdown after Sept. 11. It also recorded a gain of $17 million to operating income, thanks to a tax settlement. Taking these items into consideration, FedEx's earnings improved over last year on a comparable basis, rather than remaining flat.
The real story, though, is FedEx Ground. The delivery service continues to show impressive growth and encroachment into UPS's
In this most recent quarter, FedEx Ground's revenues jumped 27% to $863 million, now making up 15% of its total revenues. Operating margins for the division also ticked up impressively, to 15.6% from 11.8%. The average daily package volume for FedEx Ground grew 25%, and the yield per package increased 2%.
FedEx Ground is the company's fastest-growing and highest-margin unit. FedEx Express still makes up 72% of the delivery company's revenues, but any significant future growth lies on the ground, not in the air.
The company recognizes this and will wisely spend $1.8 billion over the next six years to add more truckers to its network of independent carriers (UPS is unionized). Offering evening and weekend deliveries will also boost Ground results.
Shareholders should be pleased with FedEx's overall results and greatly encouraged by FedEx Ground's contribution. UPS, on the other hand, should watch its back.