© Reuters. FILE PHOTO: A FedEx truck is driven through downtown in Los Angeles, California, U.S., July 22, 2019. REUTERS/Mike Blake/File Photo
By Lisa Baertlein
LOS ANGELES (Reuters) – FedEx Corp (NYSE:) benefited from misfortunes experienced by rivals UPS and Yellow (OTC:) during its latest quarter as the global delivery firm continued slashing costs to match ongoing softness in global e-commerce demand, according to company officials and financial analysts.
Analysts broadly expect Memphis-based FedEx on Wednesday to report higher year-over-year profit for the fiscal first quarter that ended on Aug. 31. That is because some worried United Parcel Service (NYSE:) customers shifted packages to the FedEx network ahead of the Aug. 1 expiration of that rivals’ contract covering about 340,000 United Brotherhood of Teamsters-represented workers.
UPS executives last month said worried customers shifted 1 million packages per day to other providers, resulting in about $200 million of lost sales. They estimated that roughly a third of that volume landed with rival FedEx.
As one of the largest providers of less-than-truckload shipping, FedEx also was in prime position to benefit from last month’s demise of Yellow, one of that sector’s dominant players.
Analysts generally expect the Yellow bankruptcy volume bump to be more durable than the one from the UPS labor talks.
“We believe UPS will be aggressive in trying to win back the business,” TD Cowen analyst Helane Becker said in a recent note.
Nevertheless, FedEx could retain a portion of that business after requiring new customers defecting from UPS to sign agreements with terms of at least 12 months, Becker added.
The UPS customer gains would benefit FedEx’s Ground segment, while the Yellow business would bolster FedEx Freight.
FedEx reset expectations roughly a year ago when it withdrew its full-year profit forecast, citing a sharp downturn in its business that resulted in a 21% drop in earnings for the fiscal first quarter. The company since has been merging its separately operating Express and Ground units as part of a $4 billion cost-cutting push.
While operational challenges remain, “we expect Ground and Express volumes to stabilize and gradually recover along with overall e-commerce activity” during FedEx’s fiscal year ending May 2024, Morningstar Matthew Young said in a client note.