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Will FedEx deliver earnings?

Sep 20, 2016
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FedEx is trying to decrease its dependence on the postal service.
Justin Sullivan/Getty Images

Investors will be perusing FedEx’s earnings report when it comes out after the bell Tuesday for signs the delivery company will be delivering more profits, or at least plans for more profits. FedEx stock is up 6 percent year-to-date, which is better than it performed last year (when it was down 14 percent). 

The company is in the midst of a broad-based plan to improve its business, based largely on a simple truth: 

“It’s more cost-effective to carry packages on the ground than in the air,” said Helane Becker, managing director at Cowen and Company. FedEx is trying to grow, among other things, its ground shipping business.

Right now, FedEx often pays the postal service for the last mile of delivery, which is getting increasingly expensive.  

“The idea is to lessen their dependence on the postal service, and the way they want to do that is to have distribution centers closer to the end users,” Becker said.

FedEx has built around 60 or so highly automated regional distribution centers where packages are sorted and sent out. 

The most recent was for the Pittsburgh area, and FedEx has another three dozen or so planned, according to Satish Jindel, president of SJ Consulting.

Internationally, FedEx is trying to up its ground delivery game in Europe by acquiring TNT Express.

“TNT is a very strong parcel carrier in the European market where FedEx was comparatively weak relative to competitors,” Jindel said.  

All in all, he said, FedEx’s approach should help it tap into the huge and growing e-commerce market. 

“It actually enhances their ability to partner with Amazon, plus the people who compete with Amazon, the brick-and-mortar stores,” he said, who want to leverage their local chains for local next-day delivery.