Is the FedEx cash cow at risk?
Why the winds of change are blowing against the company's most profitable segment.
While the company saw particularly heavy volume over the holiday season, the same harsh winter weather that ate into many retailers' profits this winter also hit FedEx, cutting into its operating margin and impacting the company's bottom line.
More broadly however, many on Wall Street are wondering how shipping companies like FedEx and UPS (UPS) are going to adapt to the ongoing shift in consumer demand, as more and more consumers want next-day shipping, or even same-day shipping.
FedEx's high margin business FedEx Express, which uses next-day air shipping to meet those demands, is the company's bread and butter and most profitable segment.
But in order to afford the costs associated with such short shipping times, many companies are electing to build distribution centers near major metropolitan areas instead to take advantage of ground shipping to consumers for next-day orders, which cuts out FedEx's cash cow middleman air shipping service.
FedEx isn't just sitting back idly while this trend occurs, however. In this video from Wednesday's Stock of the Day, host Mark Reeth and Motley Fool industrials analyst Blake Bos dig into the business of FedEx, discuss how the company is adapting to shifting consumer demand, and highlight the most important thing investors need to be watching with this company.
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