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FedEx’s Ground Revenues Flying on e-Commerce’s Wings

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Sep. 23 2016, Updated 10:04 a.m. ET

FedEx Ground revenues in fiscal 1Q17

In the previous article, we looked at FedEx Corporation’s (FDX) Express segment’s performance. In this part, we’ll take a look at FedEx’s Ground segment.

The FedEx Ground segment’s revenues rose 12% from $3.8 billion in fiscal 1Q16 to $4.3 billion in fiscal 1Q17. The e-commerce boom, higher Ground segment volumes, better yield, and the inclusion of FedEx SmartPost revenues led FedEx Ground revenues to rise in fiscal 1Q17.

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Segmental breakup

The FedEx Ground segment consists of FedEx Ground and GENCO. GENCO is a third-party logistics provider in North America, which FedEx acquired in 2015. FedEx Ground revenues rose 12.5% from $3.4 billion to $3.9 billion. The GENCO revenues increased from $370.0 million in fiscal 1Q16 to $399.0 million in fiscal 1Q17, indicating a rise of 7.8%.

FedEx Ground’s average daily package volumes rose by 10% in fiscal 1Q17 due to solid volumes growth in its residential as well as commercial segments. The FedEx Ground package yield rose 2.3% in fiscal 1Q17.

The overall FedEx Ground yield per package rose 3% due to better yields in the company’s Ground and SmartPost segments. According to the company, FedEx Ground’s market share has been steadily increasing in the last 17 consecutive years.

Management insight

FedEx (FDX) anticipates that its FedEx Ground segment revenues should grow in fiscal 2017, mostly driven by e-commerce volume growth and enhanced market share. The company expects to increase the pricing of its FedEx Ground business on January 2, 2017, by an average of 4.9%. Plus, FDX will also change the dimensional weight divisor for FedEx Ground from 166 to 139.

Starting in February 2017, the company will update the Ground business fuel surcharges on a weekly basis. However, in view of the coming peak season, FedEx also stated that Christmas Eve, which falls on a Saturday in 2016, won’t be a service day for the FedEx Ground segment, unlike the FedEx Express segment.

Investors who prefer the transportation and logistics sector can consider investment in the iShares US Industrials ETF (IYJ). Major railroads, including CSX Corp. (CSX) and Union Pacific (UNP), make up ~4.1% of the portfolio holdings of the iShares US Industrials ETF (IYJ). Major airlines (DAL) comprise 6.6% of IYJ.

Keep reading to learn more about the performance of FedEx’s Freight segment fiscal 1Q17.

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