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International Package Growth Boosts FedEx Express’s Revenues in Fiscal 2Q17

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FedEx Express revenues in 2Q17

In fiscal 2Q17, FedEx’s (FDX) Express segment reported revenues of $6.7 billion, as compared to $6.5 billion in 2Q16. This translates into a YoY (year-over-year) rise of 2.4%.

The Express segment is a major contributor to FedEx’s overall revenues, and the growth in the segment’s revenues was mainly attributed to better International Export Package revenue in fiscal 2Q17.

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US domestic operations

FedEx’s total US Package revenues reached $2.96 billion in fiscal 2Q17, which is 2.1% higher than its $2.9 billion in fiscal 2Q16. This was mainly due to yield growth, though volumes declined. The US domestic average daily package volumes in 2Q17 fell 0.6% YoY.

Despite lower fuel surcharges, US operations’ yield per package rose 2.7%. The domestic package yield rose 2.5% YoY on rates and discounts. In US domestic operations, the US overnight envelope average daily volumes rose 4.9% in 2Q17. This fueled a 6.3% growth in the US overnight envelope revenues.

International operations

International express package revenues rose ~2% from $2.33 billion in fiscal 2Q16 to $2.38 billion in fiscal 2Q17. This subsegment consists of International Economy, International Priority, and International Domestic services. International Domestic also represents international intra-country operations.

Much of the revenue rise came from international economy, where revenues rose 6.5% in fiscal 2Q17. While international economy’s average daily volumes growth was not impressive, its yield expressed in revenue per package rose 4.6% in 2Q17. International priority volumes rose 2%.

Meanwhile, international export yields rose 1% on the favorable impact of rate and discount changes, higher weight per package, and region mix. Notably, fuel costs didn’t have a material impact on the Express segment’s international operation’s yields.

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Management outlook

FedEx Express contributes ~53% of the company’s total revenues and accounts for ~55% of its profits. FDX expects its margins to improve further, particularly after it merges TNT Express NV operations into its Express segment. However, for fiscal 2017, the company reported the operating results of the FedEx Express and TNT Express separately.

As of January 2, 2017, FDX will increase the FedEx Express rates by an average of 3.9%. The company will also change the dimensional weight divisor for this segment from 166 to 139, which should result in better revenues going forward.

Investing in ETFs

Investors looking to invest in US transportation stocks, which include airlines (DAL), railroads (CSX), trucking (JBHT), and other logistics companies (UPS), can consider the First Trust Industrials/Producer Durables AlphaDEX Fund (FXR). Major US airlines and prominent railroads make up 15.8% and 5.1%, respectively, of FXR.

Next, we’ll review FedEx’s Ground segment performance.

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