FedEx has reportedly been navigating the challenges in the parcel market and impressing investors on Wall Street.
Despite facing declining package volumes, the global courier and delivery service company’s stock has surged by 44% this year, outperforming its main rival, United Parcel Services (UPS), whose shares have declined by 9.1% in the same period, Bloomberg reported Wednesday (Sept. 20).
The shipping and logistics company’s volume trends generally improved each month during the most recent quarter, according to a presentation released Wednesday (Sept. 20) in conjunction with the company’s quarterly earnings call.
Across the company’s four services, the volume in August was better than it was in June, according to the presentation.
In year-over year comparisons, FedEx Express U.S. Domestic Package volume was down 3% in August after having been down 9% in June. FedEx Ground volume also improved, with a 4% gain in August after a 3% decline in June.
“Across Ground and Express, volumes improved sequentially, aided by the threat of a strike at our primary competitor,” Brie Carere, executive vice president and chief customer officer, said Wednesday during the company’s earnings call. “We onboarded new customers who valued our service and were committed to a long-term partnership with FedEx.”
FedEx competitor UPS had faced the threat of a strike before its workers approved a new contract in August.
Investors, meanwhile, are attributing FedEx’s success to its $6 billion cost-cutting plan, which aims to streamline operations and reduce the number of workers on staff, according to the report. This initiative has garnered optimism among investors who believe that if successful, the company’s stock will continue to rise significantly.
FedEx’s ability to weather the decline in post-pandemic package demand better than UPS has also contributed to its stock’s resilience, the report said. While FedEx’s revenue per package is expected to drop at the Express unit, it is anticipated to rise at the Ground unit, where the company is pushing for more volume. Unlike UPS drivers, FedEx Ground drivers are not unionized and earn lower wages.
Another potential boost for FedEx comes from the recent bankruptcy filing of trucking company Yellow Corp., which could increase the company’s market share in the freight industry through its Freight unit, per the report.
Despite the challenges posed by declining package volumes, both FedEx and UPS have expressed their commitment to maintaining price discipline, according to the report. However, industry experts believe that achieving the announced rate increases of about 5.9% for next year will be challenging given the current market conditions. The continued decline in package volumes may lead to increased discounting and potentially lower pricing.
FedEx CEO Raj Subramaniam has been focused on implementing efficiency plans to lower costs and improve margins, the report said. The company’s DRIVE efficiency program and network integration efforts aim to yield significant savings and efficiencies by 2025. Analysts believe that if Subramaniam can successfully execute these plans, FedEx’s stock will have substantial growth potential.
During the company’s most recent earnings call, which was held in June, FedEx reported that it had boosted its operating margins by managing expenses in such ways as reducing flight hours, retiring aircraft, closing facilities, and managing headcount and hours.
FedEx will hold its first quarter, fiscal year 2024 earnings call Wednesday (Sept. 20).