FedEx was certainly in the news big time last week.
First, reports surfaced last week saying that company’s Freight business unit, an LTL carrier, had temporarily suspended service to some 1400 customers earlier in the month.
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| But despite all that good news, the stock price fell more than 4%, on concerns over rising labor costs and a big jump in capital spending. |
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That left a lot of shippers suddenly in the lurch, as FedEx tried to address a network stretched to the brink. A FedEx spokesperson said the cuts were "designed to minimize network disruptions and balance our capacity and demand to avoid backlogs across the country.”
Affected customers are reportedly complaining the service suspension was enacted with little up front notice. FedEx, however, now says it is now re-instating service for many companies impacted by the move.
In addition to culling customers, FedEx also said it is imposing a $30 per shipment fee on FedEx Freight deliveries to certain zip codes after July 5.
The parcel giant also issued its fiscal Q4 earnings release, showing big gains in revenue and profits on the continued ecommerce boom – but the stock fell sharply anyways.
Adjusted earnings for the quarter almost doubled to $5.01 per share, beating analysts’ estimates of $4.99 per share. Total revenue jumped 30% to $22.56 billion and surpassed the Street’s estimates of $21.51 billion.
For the full year 2021, adjusted earnings grew 91.3% to $18.17 per share, and total revenue increased 21.3% to $83.96 billion.
On an annual basis, FedEx Express, FedEx Ground, and FedEx Freight segments grew 18%, 34%, and 10%, respectively.
The company also raised its quarterly dividend by a huge 15.4%, representing a 1.04% forward yield.
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 But despite all that good news, the stock price fell more than 4%, on concerns over rising labor costs and a big jump in capital spending.
“The inability to hire team members, particularly package handlers, has driven wage rates higher and creates inefficiency in our networks,” Chief Operating Officer Raj Subramaniam said Thursday on a call with analysts. As a result FedEx said it is increasing expensive overtime.
“They need to spend more because their networks are stressed with the surge of freight that we’re seeing,” said Lee Klaskow, an analyst at Bloomberg Intelligence.
The company said it would boost capital spending by 22% this year to add capacity to its network, after a surge in e-commerce packages caused ground delivery delays.
That would take Capex to $7.2 billion in the fiscal year started June to accelerate capacity expansion, modernize its fleet and facilities, and increase use of automation. That compares to approximately $5.9 billion in capital spending in each of the last two fiscal years.
FedEx will spend heavily to build 16 new automated sortation centers. Adding to more than 140 fully automated facilities. The company is also adding a "very large hub" in Chino, California, in addition to the regional sortation facilities.
FedEx also said it is currently working to "substantially" increase its capacity ahead of the holiday season by building out its infrastructure.
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