FedEx struggles to deliver amid labor pinch

Quarter’s expenses jump $450M; profits sink 11%; year’s outlook sliced

FedEx stocks slid the most in 18 months as a labor shortage that's driving up costs showed no sign of letting up.

The package delivery company said Tuesday that its costs are up $450 million in the most recent quarter, as it paid higher wages as it got harder to find new workers and demand for shipping increased. FedEx also cut its outlook for the year, saying earnings will be lower than it previously expected, partly because increased costs related to the tight labor market.

At the Ground unit, which handles most of the holiday delivery surge, about 6% of daily volume is being rerouted away from sorting hubs that lack enough workers, said Brian Ossenbeck, an analyst with JPMorgan Chase & Co.

The shares dropped 9% to $229.05 in New York.

Illustrating its problems plaguing the package giant, a Ground unit sorting hub in Portland, Ore., is staffed at only 65% because of the labor pinch, Chief Operating Officer Raj Subramaniam said on a call with analysts Tuesday evening. The company responded by shifting 25% of volume that would typically go through Portland to other facilities -- straining the network and pushing up costs to haul packages to other areas.

FedEx is trying to attract workers by offering higher wages, which have increased more than 25% from a year earlier at some Express unit hubs. The company also is turning away some package volume from customers to help keep service levels from deteriorating.

Overall, FedEx said its expenses rose 16% to $20.6 billion, and its profit fell 11% to $1.11 billion in the fiscal first-quarter, which ended Aug. 31.

On a per-share basis, the Memphis-based company said adjusted earnings came to $4.37 per share, missing Wall Street expectations by 59 cents, according to Zacks Investment Research.

Revenue rose 14% to $22 billion in the period, beating expectations.

Information for this article was contributed by Thomas Black of Bloomberg News (WPNS) and by Joseph Pisani of The Associated Press.

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