FedEx shares slip as higher profit falls short of expectations By Reuters

(Reuters) -U.S. delivery firm FedEx Corp (NYSE:) posted lower-than-expected quarterly earnings on Thursday, hit by ongoing labor woes and the Omicron outbreak, and sees softer ground margins in the second half.

Shares of FedEx fell 3% to $221.20 in extended trading.

E-commerce shipments fueled revenue at FedEx and United Parcel Service (NYSE:) during the COVID-19 pandemic, but FedEx has been less successful than its rival at translating that business into profit.

FedEx needs to start capitalizing on an extremely strong demand environment and “showing investors that they are starting to use that increased revenue more efficiently – that they’re managing costs better,” said Patrick Donnelly, an analyst at Third Bridge Group.

While labor challenges began to ease in the latest third quarter, FedEx Chief Operating Officer Raj Subramaniam said volume was softer than forecast due to Omicron.

“As such, we expect our second-half Ground margins will be lower than our previous expectations and not reach double digits,” Subramaniam said on a conference call with analysts.

“We’re laser-focused on improving our margins,” he said.

In January, FedEx warned that Omicron infections caused staff shortages and delayed shipments in its aircraft-dependent Express operation. That news came after FedEx said staffing shortages in its Ground division were hurting profits and delaying deliveries.

Meanwhile, the unionized workforce at UPS has been a bright spot in the tight U.S. labor market. UPS offers employees better pay and benefits than their non-union peers that deliver for FedEx and Amazon.com (NASDAQ:), which have struggled to hire and retain drivers and other key workers. Memphis-based FedEx’s adjusted net income for the fiscal third quarter increased almost 30% to $1.22 billion, or $4.59 per share. However, that missed analysts’ call for a profit of $4.64 per share, according to Refinitiv I/B/E/S Estimates.

Revenue for the quarter ended Feb. 28 grew nearly 10% to $23.6 billion.

FedEx on Thursday stood by the full-year forecast it reinstated in December, again calling for earnings excluding items of $20.50 to $21.50 per share. In September, FedEx lowered that range to $19.75 to $21.00 per share.