(Photo Credit: BriYYZ)

FedEx (FDX) is set to report earnings for its first fiscal quarter of 2015 before the market opens on Wednesday, September 17. FedEx is one of the largest courier delivery services in the United States, collecting tens of billions of dollars in revenue each quarter.

FedEx and other major logistics players such as UPS (UPS) have benefitted in recent years from an expansion in e-commerce and an increased demand for package deliveries. FedEx and its peers are enjoying improved efficiency due to the high economies of scale within the industry, bolstering profits.

The climate of the industry has been favorable over the past decade, but now a dark cloud is popping up on the horizon. Tech giants Amazon (AMZN) and Google (GOOGL) have been flirting with new same-day delivery technologies including driverless cars and automated drone shipments which threaten to reshape the logistics industry sometime in the foreseeable future.

In June FedEx reported earnings for its 4th fiscal quarter of 2014, reversing a 6 month funk where the company failed to meet analyst expectations. FedEx announced earnings of $2.46 per share, trouncing the Estimize EPS consensus of $2.31. Shares of FedEx shot 6% higher in response to the earnings beat. In its earnings release FedEx commented on the factors that drove growth with the following statement.

“Excluding business realignment program costs and aircraft impairment charges last year, operating results improved on higher volumes and operational efficiencies at FedEx Freight, increased volumes and yields at FedEx Ground, and better revenue and cost performance at FedEx Express.”

Last quarter FedEx’s total revenue came in at $11.800 billion. Each of FedEx’s three major segments improved in the previous period, but by varying degrees. Sales growth was the least inspiring in the FedEx Express segment, where revenue improved only marginally from $6.98 billion to $7.00 billion.

FedEx Ground showed a better performance, there revenue increased 8% from $2.78 billion to $3.01 billion. FedEx noted that the Ground segment’s daily delivery volume was up 8%, boosted largely due to growth in e-commerce.

FedEx’s final segment, Freight, showed the largest relative revenue increase of the company’s 3 major branches. FedEx Freight’s revenue rose 12% from $1.39 billion to $1.55 billion. Operating margin within FedEx Freight also increased from 5.8% in the previous year to 7.9% and profit from operations were up an impressive 51%.

(Graph above from ChartIQ Visual Earnings)

FedEx stock has been gaining ground since the June earnings announcement, and profit expectations for the coming quarter are more demanding. Contributing buy side and independent analysts on Estimize are forecasting that FedEx will report a 2 year best improvement to the bottom line with earnings per share rising by 28% on a year over year basis (yoy). At the same time the Estimize community predicts that revenue will match a six-quarter best yoy growth rate of 4%.

FedEx is making strides to improve its bottom line while revenue is growing at a slow but steady pace. The 4% sales growth that contributing analysts on Estimize expect would result in a $466 million addition to FedEx’s top line. A sales increase of nearly half a billion dollars is no small feat, but it’s a relatively minor gain given the massive scope of FedEx’s business.

The expected improvement to FedEx’s top line may not be glittering, but its parcel delivery service is positioned to benefit from an increased scale of operations, reducing the average cost of each delivery and making a substantial impact on the company’s bottom line.

Additionally Alibaba’s IPO on the US market scheduled for Friday, September 19 may be a powerful positive long term catalyst. If the Chinese e-commerce giant can quickly gain a foothold in the United States and outside mainland China, there will be a spike in the demand for delivery logistics which FedEx and other courier services may capitalize on.  

In the near future there are plenty of reasons to believe that FedEx will continue to become more profitable. Questions begin to arise when one considers the potential for Amazon, Google, and other tech companies to go after the logistics business 5 to 10 years from now.

The two tech companies have already begun successfully experimenting with their own same day delivery services, but will likely still maintain partnerships with the logistics companies for shipping large quantities of goods around the country. As Amazon and Google continue to test the waters of the logistics industry, they will rely on couriers for high scale logistics support, at least until they release autopilot enabled cargo planes, driverless electrics trucks, teleportation, or whatever they dream up next.