FedEx Shipments Fall for Fourth Straight Quarter, Looks to Deeper Cost Cuts

Delivery giant FedEx has had a somewhat traumatic year earnings wise with multiple warnings as inflation, rising rates and the supply crunch have all affected it. FDX reporting its November end quarter beat EPS by $0.36 but missed on revenue and guided FY23 EPS below consensus. FedEx reported that fewer packages moved through FedEx’s system for the fourth straight quarter with weaker demand most acute in its Express unit, which provides overnight and international deliveries. FedEx continued to be wounded by a collapsing European and Asian economies.

The company also reduced capital its spending outlook by $400 million and expects to generate FY23 cost savings of approx. $3.7 billion. The market liked that aspect with the stock trading up 3.72% after hours.

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FedEx Fiscal Q2 23 Highlights 

  • Adj EPS: $3.18 (exp $2.80)
  • Revenue: $22.8B (exp $23.69B)
  • Sees FY Adj EPS $13.00 To $14.00 (exp $14.14)
  • Identifies Added $1B Cost Savings Beyond September Forecast
  • Average number of packages FedEx handled daily in the quarter fell 10.2% from prior year.
  • Shipping volumes at FedEx’s Ground unit, which mostly handles e-commerce deliveries in the U.S., fell 9.1%.
  • However, ground uni, sales rose 1.6% to $8.39 billion on the back of a nearly 13% increase in average price even as package volume fell 9.1%.
  • The trucking unit saw sales jump 8% to $2.45 billion, buoyed by an 18% gain in revenue per shipment.
  • Market Reaction $170.46▲ 6.11 (3.72%) After Hours

Cost Savings

FedEx said capital expenditures are expected to be $5.9 billion for fiscal year 2023 that concludes at the end of May. That’s down $400 million from its previous forecast.  FedEx Corp. last quarter said it expected expects to save as much as $2.7 billion this fiscal year through wide-ranging cost-cutting measures in response to weakening business conditions.

FedEx in response said those efforts to control costs, following the weakening macroeconomic environment, helped it to mitigate declines in package volumes. The company has also identified an additional $1 billion in cost savings and lowered its capital spending plans for the fiscal year.

“As we look to the second half of our fiscal year, we are accelerating our progress on cost actions, helping to offset continued global volume softness,” said FedEx Chief Financial Officer Michael Lenz.

Expected cost savings measures on track:

  • FedEx has parked Express cargo planes, closed some offices, and furloughed some employees from its freight unit.
  • It is also undertaking longer-term changes to make its delivery networks more efficient.

Chief Executive Officer Raj Subramaniam said in the statement. “Our earnings exceeded our expectations in the second quarter driven by the execution and acceleration of our aggressive cost reduction plans.”

Fiscal Q3 23 Outlook

For the year, FedEx lowered its target of adjusted earnings of $13 to $14 a share, excluding pension-fund fluctuations and expenses related to the cost-saving measures. Analysts were predicting adjusted profit of $14.14 a share. 

    2023 Rate Increases

    Effective January 2, 2023, FedEx Express, FedEx Ground, and FedEx Home Delivery rates will increase by an average of 6.9%. FedEx Freight rates will increase by an average of 6.9%-7.9% dependent on the customer’s transportation rate scale. Details related to these and additional changes to rates, surcharges, and fees are available at fedex.com/en-us/shipping/current-rates.html.


    FedEx has never got back to the levels when it benefitted from surging demand for online purchases driven by the pandemic. Demand was not FedEx’s problem; the main issue facing the company was surging labor costs. Now demand is down on inflation and there are delivery problems. Not a pretty scenario.

    The biggest culprit for previous huge EPS misses was higher labor costs, not its freight issues on top of that. The inability to hire, particularly package handlers, has driven wage rates higher. However, the more significant impact is the widespread inefficiency in operations that results as FedEx uses overtime to cover open shifts and route volume.

    Cost reductions from last quarter

    The company expects the benefits of cost actions to mitigate the effects of reduced demand throughout the remainder of fiscal 2023. These cost actions include:

    • Reduction in flight frequencies and temporarily parking aircraft.
    • Volume-related reductions in labor hours and other linehaul expenses.
    • Consolidation of certain sort operations to drive productivity.
    • Reduction of Sunday operations at a number of FedEx Ground locations.
    • Cancellation of certain planned network capacity and other projects.
    • Deferral of staff hiring.
    • Closure of over 90 FedEx Office locations; and
    • Identification of five corporate office facilities to be closed, with additional real estate rationalization planning under way.
    • Anticipated capital spending for fiscal year 2023 has been revised to $6.3 billion, compared to the prior forecast of $6.8 billion.

    FedEx indicated previously that it also remains focused on last-mile optimization, including the continued rollout of the FedEx Express initiative to utilize FedEx Ground for the transport and delivery of select day-definite FedEx Express residential packages within the U.S. FedEx Ground will complete the integration of FedEx SmartPost packages into standard FedEx Ground operations by peak season. Given that the current issues are beyond their control.

    Sources: FedEx

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