Delivery giant FedEx announced stronger-than-expected fourth quarter (May 2023) earnings Tuesday, however revenue missed and there was recurring disappointment after the company issued a muted profit forecast for its coming fiscal year, amid what it described as ongoing demand weakness and input cost inflation. It has had a somewhat traumatic few years earnings wise with multiple warnings as inflation for FDX, rising rates and the supply crunch have all affected it. FedEx continued to be wounded by what is still insipid European and Asian economies. FedEx is seen as a barometer for the domestic and global economies.
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 Fiscal Q4 23 Highlights
- Adj EPS: $4.94 (est $4.89) fell 28% from last year
- Revenue: $21.9B (est $22.72B) fell 10.2% from last year
- FedEx Express, FedEx’ largest company, $10.4 billion in revenue for Q4, a 13% decrease from $11.9 billion the year before. Operating income declined from $886 million in 2022 to $430 million this year, down 51% year-over-year.
- FedEx Ground, $8.3 billion in revenue versus $8.5 billion the year-before quarter, operations income increased from $849 million to $1 billion.
- FedEx Freight $2.3 billion for the quarter, down 18% from $2.8 billion. Operating income of $448 million down from $602 million.
- Sees 2024 Adj EPS At $16.50-$18.50 (est $18.31)
- Sees 2024 CapEx At $5.7B (est $5.98B)
FDX Stock Market Reaction
- $224.50 ▼ 7.15 (3.09%) After Hours
- $231.65 ▲ +1.75 (+0.76%) past year
- $231.65 ▼ -10.12 (-4.19%) past 5 years
- 52wk High $248.76
- 52wk Low $141.92
CFO Retiring
FedEx also said that Chief Financial Officer Michael Lenz would retire on July 31. Management said it had begun an external search to fill the position. Lenz, who became CFO in March 2020, will serve as a senior adviser until Dec. 31 to help with the changeover.
Cost Savings
FedEx executives found positives in results they planned for in March, which included progress in the company’s DRIVE initiative to save $4 billion by fiscal year 2025.
“I also want to thank our team members for their hard work and dedication as we build the world’s smartest logistics network,” said Raj Subramaniam, FedEx president and CEO, during Tuesday’s fourth quarter earnings call. “We made tremendous progress on our transformation efforts in fiscal year (2023) and the team is already moving with urgency as we enter fiscal year (2024). We know there is significant opportunity ahead, and I’m confident in our ability to execute.”
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.
Fiscal 2024 Outlook
FedEx said it sees revenue growth that is flat to last 2023 levels, or growing at a low single-digit pace, with earnings in the region of $15.00 to $17.00 per share, and $16.50 to $18.50 “after also excluding costs related to business optimization initiatives.”
“The solid close to the fiscal year demonstrates the significant progress Team FedEx has made in advancing our global transformation while adapting to the dynamic demand environment,” said CEO Raj Subramaniam.
“FedEx is becoming a more flexible, efficient and data-driven organization as we significantly lower our cost structure, drive enhanced profitability, and deliver outstanding service for our customers,” he added.
2023 Rate Increases
Effective January 2, 2023, FedEx Express, FedEx Ground, and FedEx Home Delivery rates increased 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.
Sources: FedEx
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