FedEx Mulls Peak-Pricing Charges as E-Commerce Spurs Deliveries

(Bloomberg) -- FedEx Corp. is studying whether to charge customers more during the busiest shipping periods, aiming to profit even more from the surge in online shopping.

The courier is evaluating several options for peak pricing and may also charge more for oversize items, Executive Vice President Rajesh Subramaniam told investors and analysts Tuesday. FedEx’s biggest rival, United Parcel Service Inc., said this week it will impose surcharges on deliveries during the holiday shopping rush in November and December.

“We are focused on ensuring that we are compensated for the investments we make to deliver outstanding service during peak,” Subramaniam said. “We continue to consider additional peak pricing changes but have not made a final decision in this regard.”

Price increases around Black Friday and Christmas would give FedEx’s earnings an additional boost at a time when the company is already benefiting from a recent jump in shipping rates and package volumes. Profit will climb as much as 14 percent in the current fiscal year, FedEx said Tuesday.

The outlook underscored the potential payoff from FedEx’s heavy investments in fiscal 2017 to handle rising demand from the expansion of e-commerce. The air-freight pioneer, an economic bellwether because of the variety of shipments it carries, is also poised to gain from stronger worldwide growth.

Profit Outlook

FedEx said earnings would be $13.20 to $14 a share for the fiscal year through next May excluding pension adjustments and costs from the integration of TNT Express. The midpoint of that forecast was in line with the $13.61 average of analysts’ estimates compiled by Bloomberg.

The shares climbed 1.1 percent to $211.24 at 6:25 p.m. in New York, after the close of regular trading. FedEx has advanced 12 percent this year, compared with an 8.9 percent gain for an S&P index of industrial companies.

The Memphis, Tennessee-based company delivered its upbeat outlook as it reported that adjusted earnings for the fiscal fourth quarter rose to $4.25 a share. That exceeded the $3.88 predicted by analysts, ending two straight quarters of disappointing results. Higher pricing and increased package shipments helped boost earnings, FedEx said.

Sales climbed 21 percent to $15.7 billion for the period, which ended May 31. Analysts had expected $15.6 billion.

Ground Margins

FedEx’s ground division has seen the bulk of the company’s infrastructure investments, and that unit hasn’t yet seen much benefit, said David Campbell, an analyst at Thompson Davis & Co. The segment’s operating margin fell slightly in the fourth quarter to 15 percent from 15.3 percent. Campbell said he expects to see greater benefits in the 2018 fiscal year from spending on added capacity and more automation.

Home deliveries generally have lower yields than shipments to businesses because employees usually handle fewer packages at residential stops. That pressures profit margins.

For last year as a whole, FedEx earned $12.30 a share on an adjusted basis. The company expects to benefit this year from its 2016 acquisition of Dutch shipper TNT Express and its European network for 4.1 billion euros ($4.5 billion). Spending to integrate the two companies will total about $800 million over four years, FedEx has said.

FedEx President David Bronczek also said the company is in discussions with Boeing Co. about future fleet opportunities, without specifying what aircraft models it is looking at. FedEx said its capital expenses would rise to $5.9 billion in fiscal 2018, up from about $5.1 billion in the past year. Most of the increase will occur in the Express side of the company, which includes the air fleet, said Chief Financial Officer Alan Graf.

“We are going to take advantage of some opportunities on the fleet side of the house that we see possibly in front of us,” Graf said.

To contact the reporters on this story: Michael Sasso in Atlanta at msasso9@bloomberg.net, Mary Schlangenstein in Dallas at maryc.s@bloomberg.net.

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Crayton Harrison