FedEx Corporation (FDX Quick Quote – ) Ground segment, which accounts for over 30% of its total revenues and approximately 59% of its operating income, is expected to be driven by increased revenues (quarter ending February 28, 2022). This is FDX's second largest revenue generating segment after the Express segment.

FedEx Ground offers low-cost, limited-day service to any commercial address in the U.S. and Canada, in addition to residential delivery in the U.S. through its FedEx Home Delivery service.

FedEx Ground Second Quarter Results Highlights

FedEx Ground revenue increased 13 percent year-over-year to $8,264 million, driven by higher revenue per review from service mix and pricing initiatives. Operating income decreased 13 percent to $481 million year-over-year. Segment operating results were impacted by higher purchased transportation costs, higher wage rates and network inefficiencies due to staffing shortages. Operating results were also negatively impacted by increased expansion-related costs.

Labor Scarcity Could Hurt Q3 Performance

Supply chain disruptions could weaken the FedEx Ground division's operating results in the fiscal third quarter similar to the fiscal second quarter. Omicron-induced labor woes may also impact results. In addition to the high costs associated with expansion, inefficiencies caused by rising labor costs and staffing constraints likely contributed to this downside.

E-commerce and strong holiday sales likely to increase revenue

Despite the potential impact of the aforementioned headwinds, e-commerce growth may have helped the division's revenue in the quarter to be reported. Despite the reopening of the economy in contrast to last year, online shopping remains a consumer favorite. Strong demand scenarios during the peak holiday season may have boosted segment sales. The Zacks Consensus Estimate for fiscal third-quarter revenue for the FedEx Ground segment, which handles e-commerce deliveries for many retailers, is $8.843 billion, up 7% sequentially. Higher revenue per package may also have boosted revenue. The consensus mark for second-quarter revenue per review for the Ground segment now indicates a 1.8% increase from the figure reported a year ago.

Overall revenue and income projections

The Zacks Consensus Estimate for FedEx's fiscal third-quarter earnings is now fixed at $4.70 per share, up 35.45% from the figure reported in the prior-year quarter. For quarterly sales, the consensus mark of $23.58 billion indicates a 9.64% increase from the figure reported in the year-ago quarter.

FedEx currently owns the Zacks Rank #3 (Hold). As you can see

Our view

While high labor costs due to the omicron-induced labor crisis will likely be reflected in the ground segment's third-quarter results, a spike in review volume, driven by e-commerce growth, is expected to boost the segment's revenue.

Let's take a look at some of the other transportation companies whose revenues benefited from the growth in e-commerce in their recently released earnings reports.

Similar to the past few quarters, optimistic demand for e-commerce related review delivery boosted United Review Services' (UPS Quick Quote) 4Q 2021 results. UPS increased freight rates due to strong e-commerce demand.

UPS, which currently holds the Zacks Rank #3, reported fourth-quarter 2021 earnings per share (7 cents excluding non-recurring items) of $3.59, beating the Zacks Consensus Estimate of $3.11. Profits were up 35% year-over-year, with strong performance in all areas.

UPS reported quarterly revenue of $27,771.0 million, beating the Zacks Consensus Estimate of $27,179.6 million. Revenue grew 11.5 percent year-over-year, driven by higher freight rates and strong e-commerce demand.

Atlas Air Worldwide Holdings (AAWW Quick Quote – ), the parent company of Atlas Air and Polar Air Cargo, operates a fleet of freighter aircraft. AAWW was supported by strong demand for air freight during the coronavirus pandemic. The boom in e-commerce trends was the catalyst in the current situation. AAWW currently has a Zacks Rank #3.

Atlas Air's fourth quarter earnings of $7.05 per share (excluding $1.50 from non-recurring items) outperformed the Zacks Consensus Estimate of $6.11. Driven by strong e-commerce demand, AAWW reported revenue of $1,163.0 million, beating the Zacks Consensus Estimate of $1,096.8 million. According to John W. Dietrich, AAWW's president and chief executive officer, "Our strategic focus on express, e-commerce and fast-growing markets continues to drive our business forward."