FedEx's profit puppy is disappearing — and the new puppy it's chasing is expensive
"We are at the bottom"... An actual quote from FedEx's CFO, or Chief Freakout Officer, who called last quarter's 40% profit drop "horrific" (his words). The fallout:
- FedEx shares dropped 10% after the report.
- Now it's lost over $4B in market value since Tuesday.
- And it cut its projections for the holiday quarter (the 4th-straight quarter it's done that).
FedEx stuffed 2019 with excuses... Execs blamed the costs of expanding ground service, global trade disputes, a late Thanksgiving, and the loss of Amazon as a customer (FYI, rival UPS' stock is up 20% this year). The big profit loser for FedEx was ground delivery. Lots of it.
- It takes big bucks to expand ground delivery to 7 days a week (think more trucks, new facilities, and weekend shifts — all cost $$$).
- Typical ecommerce deliveries, like replacing your headphones (again), are generally light-weight, one-off deliveries — those generate less revenue than bulky business packages and require more costly routes/drivers.
Getting out of your comfort zone is hard... For decades, FedEx's profit puppy has been high-priced, overnight business shipments that you're expensing (like contracts that need to be signed yesterday). Now, you're e-scribling digital John Hancocks, instead. So FedEx execs are cockily optimistic that ground delivery investments to snag more ecommerce packages will pay off in 2021 — they boldly claimed they'd "start lapping" Amazon.