FedEx first quarter growth led by International Economy service

FedEx Corp reported a year-on-year improvement for the first quarter yesterday. Consolidated results showed a 2% increase in total revenue from $10.8 to $11 billion and a 7% rise in operating income from $742 million to $795 million. FedEx CEO Frederick Smith said overall growth in demand was the main cause of the company's recent success.

FedEx Express, the parcel delivery division and by far the largest part of the business, saw a slight 0.3% decrease in revenue from $6.63 to $6.61. This was attributed to lower fuel surcharge revenue and one fewer operating day. Nevertheless, operating income for the division was up 14%year-on-year from $207 to $236 million.  

While US domestic volume and revenue was flat, export volume grew 4% - with most of this coming from the lower end delivery services: FedEx International Economy grew 15% while FedEx International Priority saw a slight decline. 

Speaking of the results, CFO Alan Graf Jr. commented,“We remain confident in our full year earnings outlook despite tepid global economic growth. FedEx Express continued to execute on its profit improvement initiatives during our first quarter. We remain focused and are committed to FedEx Express achieving its $1.6 billion operating profit improvement target by the end of fiscal 2016.”

FedEx Ground, the division for day definite delivery across North America, reported an 11% increase in revenue from $2.46 to $2.73 billion, while the FedEx Freight Segment saw a relatively modest revenue increase of 2% from $1.4 to $21.42 billion. 

E-commerce precipitated Royal Mail privatisation

Earlier this month, the government confirmed its plans to privatise Royal Mail, following legislation passed in 2011 to pave the way for the sale. Business Secretary Vince Cable announced that a majority stake in the business will be sold through a flotation on the London Stock Exchange, and that 10% of shares in the business would be given to Royal Mail employees. The exact size of the stake to be sold will depend on market conditions at the time of the sale, which will take place before 31st March 2014, and which the UK media have speculated will happen this Autumn.  

The main reason for the sale given by the government, along with Royal Mail managers, is that the organisation requires private capital in order to develop in the way demanded by changes to the mail market. E-commerce has been cited as a primary factor in this: less letters are posted at a time when the demand for parcel delivery is rapidly increasing due to growing numbers of people shopping and doing business online. Royal Mail currently faces competition from private door-to-door couriers such as TNT Express and DHL Express. 

Unions and other campaigners against the sale warn that privatisation could eventually lead to reduced service levels, and poorer terms and conditions for postal workers. At a time when door-to-door courier services are available at much reduced rates when purchased through resellers such as Transglobal Express, it does seem that maintaining Royal Mail as a commercially viable entity will prove challenging if it plans to guarantee its six day service and set prices regardless of UK destination.