FedEx sees cargo opportunities as virus grounds airlines

Many passenger airlines that carry freight in their bellies are being grounded by the coronavirus outbreak, and that could create an opportunity for cargo carriers like FedEx.

FedEx Chairman and CEO Fred Smith said Tuesday that the delivery giant is capable of handling the increased demand for its for international express-delivery services that’s arising because of the reduction in airliners.

Executives also sounded upbeat about China’s recovery from the outbreak that started there, and about demand from U.S. consumers, millions of whom are now locked down in their homes, either by choice or government decree.

“For the last couple weeks we have seen increased demand from Asia,” FedEx President Raj Subramaniam said on a call with Wall Street analysts after the company reported quarterly financial results. “We have seen strong demand for FedEx Ground here in the U.S. and especially home delivery, and even the commercial volumes have been quite stable.”

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The company, however, doesn’t know what will happen next with the still-growing COVID-19 pandemic, Subramaniam acknowledged.

The comments came after the Memphis, Tennessee-based company posted surprisingly strong revenue but a sharp drop in profit during the quarter that ended Feb. 29.

FedEx also suspended its financial forecasts for the fiscal year, which ends in less than three months, because of the uncertain impact of the virus outbreak. It joined a long and growing list of companies withdrawing earnings guidance, from airlines and cruise lines to retailers such as Costco and Nordstrom and consumer stalwarts including Apple and Coca-Cola.

FedEx said it earned $315 million in the latest quarter, a drop of 57% from the same period a year earlier. The quarter spanned the peak Christmas delivery season in the U.S. and the early stages of the pandemic, especially in Asia.

Adjusted to exclude certain costs related to the 2016 acquisition of a Dutch competitor, FedEx said it earned $1.41 per share, matching the average forecast of 22 analysts surveyed by FactSet.

Revenue rose to $17.5 billion from $17 billion, topping the $16.9 billion that the analysts were expecting.

The company’s most recent quarter was affected by a weaker global economy, higher costs by expanding its FedEx Ground deliveries in the U.S. to seven days a week, a shift by customers to cheaper services, and last year’s cutoff of business with Amazon.

FedEx said it is managing capacity, retiring older planes and making changes in its residential deliveries — cost-control steps that it had previously announced.

“We continue to deliver for our customers and are ready to support increased demand for our International Express export services due to the significant reductions in intercontinental air capacity,” Smith said in a statement.

Shares of FedEx closed up 4.9%, to $94.96. After the release of results, the shares briefly rose in after-hours trading, but were little changed later on.

The shares have dropped 37% this year, while the Standard & Poor’s 500 index has fallen 22%.

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