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For FedEx, Covid-19 Pandemic Keeps Delivering Profit

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FedEx Corp.’s


FDX -0.88%

quarterly profit nearly tripled and revenue jumped 23%, despite winter storms in the U.S. that disrupted its delivery operations and sapped its profit by $350 million.

“We expect demand for our unmatched e-commerce and international express solutions to remain very high for the foreseeable future,” Chief Executive

Fred Smith

said in a statement.

In the quarter ended Feb. 28, FedEx’s package volumes rose 25% in its Ground unit, which handles most of its e-commerce deliveries and the bulk of its holiday shopping orders. The company logged a 29% surge in volumes in the Ground unit during the quarter ended Nov. 30.

For the Express business, which handles overnight and international shipments, daily package volume rose 12.2% in the quarter.

While e-commerce is driving its overall growth, FedEx said that U.S. business-to-business volume returned to pre-pandemic levels in January with a focus on healthcare, retail and technology-related shipments.

“We have not seen it fully come back in automotive and industrial, so we think that there’s some upside there,” Chief Marketing Officer Brie Carere said on a conference call Thursday.

FedEx struggled with significant delays for weeks after February winter storms sent many parts of the country into a deep freeze, including its major sorting hub in Memphis, Tenn. FedEx said it added shifts to catch up with the backlog, but customers said delays persisted.

To manage the pandemic-fueled demand, both FedEx and UPS have been raising prices, enforcing volume limits and adding surcharges. UPS counts

Amazon.com Inc.


AMZN -3.44%

among its biggest customers, while FedEx broke ties with Amazon in 2019 and has focused on serving its competitors like

Target Corp.


TGT 0.68%

and

Walmart Inc.


WMT -1.31%

After keeping its Express and Ground operations mostly separate, FedEx has started to integrate the two as it seeks to streamline operations. It has been putting some Express packages onto Ground trucks for last-mile delivery rather than sending two drivers to the same addresses.

The change takes “lower yielding residential packages and deferred packages and rural packages out of the Express network,” Mr. Smith said, allowing it to concentrate on higher priority business-to-business deliveries and shipments like vaccines that need special tracking. The shift also helps the Ground business be more efficient with costs and increases its density of deliveries, he said.

In the latest quarter, the Ground unit handled 13 million packages a day on average, nearly twice as many as Express, which had about seven million a day. But Ground generates nearly half as much revenue on average from each package: $9.72 in the latest quarter versus $19.21 for Express.

FedEx Express CEO

Donald Colleran

said the move is “driving a significant amount of volume through the Ground network and those numbers are accelerating on a sequential week-over-week, month-over-month basis.”

Overall, FedEx’s net income nearly tripled from a year ago to $892 million. Quarterly revenue in the fiscal third quarter reached $21.5 billion, up from $17.5 billion in the same period a year ago. The results were above Wall Street’s expectations, which were looking for about $20 billion in quarterly revenue, according to FactSet.

FedEx also issued a financial forecast for the final months of its fiscal year, which ends in May.

The company expects per-share earnings of $17.60 to $18.20, excluding adjustments for its retirement plan and debt refinancing, restructuring and deal costs. Wall Street is expecting adjusted profit of around $17.56 a share.

Write to Thomas Gryta at thomas.gryta@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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