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What's in the Offing for FedEx (FDX) Ground Unit in Q1 Earnings?

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FedEx Corporation’s (FDX - Free Report) Ground unit, which accounts for more than 30% of the company’s total revenues and around 59% of its operating income, is expected to be boosted by higher revenues when the company reports first-quarter fiscal 2022 results (quarter ended Aug 31, 2021). This is the company’s second-largest revenue-generating unit after the Express division.

FedEx Ground offers a low-cost, day-certain service to any business address in the United States and Canada, as well as residential delivery in the United States through its FedEx Home Delivery service.

Highlights of FedEx Ground’s Q4 Performance

FedEx Ground revenues surged 27% year over year to $8,132 million in fourth-quarter fiscal 2021 owing to strong growth in business-to-business shipments and a 14% rise in revenue per package. Operating income came in at $1,105 million, augmenting 64% year over year. Segmental operating margin also improved to 13.6% from 10.5% in the prior-year quarter.

FedEx Ground’s Q1 Results Likely to Reflect Robust Revenues

The surge in e-commerce demand, triggered by the coronavirus pandemic, is likely to have boosted segmental revenues in the to-be-reported quarter. Segmental volumes are expected to have been driven by growth in business-to-business shipments. The Zacks Consensus Estimate for FedEx Ground revenues in fiscal first quarter indicates a 13.2% rise from the year-ago quarter’s reported number.

Residential volume growth is likely to have driven Fedex Ground revenues in the quarter to be reported. This is expected to reflect in revenue per package. The Zacks Consensus Estimate for revenue per package at the Ground unit hints at a 10% increase from the year-ago reported figure.

However, the Ground segment’s performance might have been partly hurt by higher expenses associated with shortage of labor.

Overall Earnings & Revenue Projections

The Zacks Consensus Estimate for fiscal first-quarter earnings of FedEx, which competes with United Parcel Service (UPS - Free Report) in the package delivery space, is pegged at $4.96 per share, suggesting a 1.9% increase from the prior-year quarter’s reported figure. For quarterly sales, the consensus mark of $21.81 billion suggests a rise of 12.9% from the year-earlier quarter’s reported number.

Our Take

While high costs are likely to be reflected in the Ground segment’s results for the fiscal first quarter, soaring package volumes, led by e-commerce growth, are expected to have boosted revenues of FedEx Ground, which handles e-commerce deliveries for many retailers. Growth in residential deliveries is also expected to have aided this presently Zacks Rank #3 (Hold) company’s overall performance in the fiscal first quarter.

Stocks to Consider

Some better-ranked stocks in the broader Transportation sector are Matson (MATX - Free Report) and ArcBest Corporation (ARCB - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Matson and ArcBest have rallied more than 48% and 67% so far this year, respectively.

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