FedEx Ground sees healthy gains
The CEO of FedEx Corp. doesn't anticipate drones taking over the package delivery business anytime soon.
Fred Smith says FedEx has several drone studies under way. But the idea of delivering items by drone is “almost amusing,” Smith said in a conference call on Wednesday as the company reported financial results that included double-digit revenue gains by Moon-based FedEx Ground.
Smith said FedEx has a drone expert on staff: technology chief Rob Carter.
“He actually owns a drone,” Smith said. “He reported that it operates about eight minutes and can carry four Budweiser beers at his farm.”
Jeff Bezos, the CEO of Amazon.com, caused a stir recently when he said that Amazon is exploring drone deliveries and that sending a small package via an automated drone could become reality in a few years. United Parcel Service and German delivery company Deutsche Post DHL have said they are evaluating drone delivery.
There are huge obstacles to residential drone deliveries. The Federal Aviation Administration barred their use for commercial purposes in 2007. No-fly zones abound in places such as Washington. There are questions about who is liable if a drone crashes and damages something, or someone, on the ground.
Though FedEx eventually may have to cope with online retailers making local deliveries, it's dealing now with customers shifting from overnight delivery service to cheaper ground transportation. That shift was a factor in the smaller-than-expected gain in FedEx's second-quarter profit.
Revenue and domestic volume fell slightly in FedEx's express unit, which handles overnight shipments and is the company's largest division. Freight revenue was up 4 percent.
FedEx Ground, however, posted a 10 percent increase in revenue, or roughly $2.8 billion, compared with about $2.6 billion the year earlier. Operating income rose 3 percent to $424 million from $412 million.
The unit's results benefited from more shipping generated by e-commerce and from higher shipping rates, partially offset by lower fuel surcharges because of declining gasoline prices in recent weeks.
FedEx employs about 3,000 people in Western Pennsylvania, including 2,500 at FedEx Ground's headquarters in Moon.
For the quarter, FedEx said earnings increased 14 percent to $500 million from $438 million. Revenue rose 3 percent to $11.4 billion, from $11.1 billion.
Earnings of $1.57 a share fell short of the $1.65 expected by most analysts. The company earned $1.39 a share in the year-ago quarter, when the effects of Hurricane Sandy suppressed results by about 11 cents.
FedEx shares closed at $139.72, up 63 cents.
Staff writer Thomas Olson contributed to this report.