FedEx manpower shortage weighs on quarterly profits and earnings expectations

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A FedEx truck crosses downtown Los Angeles, California, United States, July 22, 2019. REUTERS / Mike Blake / File Photo

Sept. 21 (Reuters) – U.S. delivery company FedEx Corp (FDX.N) posted a 7% drop in quarterly profits and cut its full-year forecast on Tuesday after labor shortages work reduced profits and shipping speeds ahead of the all-important holiday season peak.

Shares of the Memphis, Tennessee-based company fell 4.5% to $ 240.75 after FedEx said personnel issues drove costs up to $ 450 million year-on-year on the other because of the increase in wages and overtime, the increase in transport expenses by third parties. services and shipping issues.

“The impact of constrained labor markets remains the biggest issue facing our business,” and was a key driver of the first quarter’s underperformance, Raj Subramaniam, chief operating officer of FedEx, said during ‘a conference call with analysts.

Most of the excess labor spending has hit the company’s land-based network, which now reroutes 600,000 packages a day to get around labor shortage issues, executives said.

As an example, Subramaniam said its hub in Portland, Oregon is only 65% ​​staffed. This forces FedEx to pay higher wages and ship packages to other hubs – adding time, package miles, and outside aid expenses.

“We expect cost pressures from grid inefficiencies, such as the one I just illustrated, will persist until the peak,” Subramaniam said. “Overcoming staffing and retention challenges is our top priority. “

The FedEx company said its adjusted net income fell to $ 1.19 billion, or $ 4.37 per share, for the fiscal quarter ended Aug.31, from $ 1.28 billion, or $ 4.87. dollars per share, a year earlier.

Revenue increased 14% to $ 22.0 billion.

In the wake of the report, FedEx lowered its full-year profit forecast, excluding items, from $ 19.75 to $ 21.00 per share. FedEx previously forecast earnings per share in 2022, excluding items, of $ 20.50 to $ 21.50.

FedEx and competitor United Parcel Service Inc (UPS.N) rush to hire workers over the holidays as resurgence of COVID-19 infections caused by Delta variants threatens to increase demand for commerce delivery electronic during the holiday season, when the volume of parcels can easily double.

FedEx aims to hire 90,000 workers to handle peak holiday season shipping. It hired 70,000 last year and 55,000 in 2019.

Up-and-coming competitor Amazon.com Inc (AMZN.O) boasts an average salary of $ 18 an hour as it rushes to expand its own delivery network. Amazon’s non-union delivery providers compete with FedEx and its delivery partners for workers.

UPS shares lost 2.5% after the FedEx report.

As the market closed on Tuesday, FedEx shares have fallen 10% in the past six months, underperforming the 19% gain in UPS shares.

Reporting by Lisa Baertlein in Los Angeles; Editing by Peter Cooney and Sonya Hepinstall

Our Standards: The Thomson Reuters Trust Principles.


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