FedEx Forecasts Profit Below Estimates as Demand Weakens
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FedEx Corp. finished its 2023 fiscal year with mixed quarterly results as the freight carrier is in the midst of a deep cost-cutting and restructuring effort that officials insist will put the company on a strong financial footing as the economy adapts to the changes brought on by the coronavirus pandemic.
The Memphis-based company said June 20 that quarterly net income was $1.54 billion, or $6.05 a share, compared with $558 million, $2.13, last year.
Those results exceeded Wall Street expectations. The average estimate of nine analysts surveyed by Zacks called for earnings of $4.83 per share.
Revenue generated in the quarter was $21.9 billion, down from $24.4 billion from the year before in the same time period.
The revenue estimate missed Wall Street expectations. Zacks expected $22.72 billion.
For the full year, income was $3.97 billion, $15.48, compared with $3.83 billion, $20.61, in 2022.
Revenue was $90.2 billion, a drop from $93.5 billion last year.
“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,” FedEx President and CEO Raj Subramaniam said. “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.”
The company has spent the majority of the past nine months searching for ways to save costs.
And it has included staff layoffs, furloughs, reductions in hours and other cost-saving measures, including the announcement in April that it would consolidate its FedEx Express, FedEx Ground and FedEx Services.
FedEx has also raised its rates, cut its flight schedule, reduced executive jobs and closed offices worldwide.
“In fiscal 2023, we delivered the early benefits of FedEx’s cost and efficiency initiatives, powered by our DRIVE program,” Chief Financial Officer Michael Lenz said. “We’re approaching fiscal 2024 with the same level of intensity, maintaining a continued focus on improving profitability to position the company for success in what remains a challenging demand environment.”
On the conference call it was also announced that Lenz is retiring from FedEx by the end of July and will serve as a senior adviser until the end of the year to ensure a smooth transition while FedEx searches for a successor.
FedEx said its DRIVE initiative will squeeze out an estimated $4 billion in savings by 2025. In FY 2024 it anticipated a cost savings of at least $1.8 billion.
“We’re entering fiscal 2024 with a continued focus on areas within our control and a commitment to execute swiftly on our priorities,” Subramaniam said during the company’s earnings conference call with analysts. “This focus will support sustained profit improvement in FY 2024 through an environment that we expect to remain marked by demand challenges, particularly in the first half.”
FedEx said as part of its plan the company will streamline pickup and delivery operations in 20 markets. In some of those locations the company will use contract service providers that will move Ground and Express packages, but in other locations the items will continue to be moved by FedEx employees.
“Each market is unique and will be optimized based on a number of factors, including volume fluctuations, customer demand, facility footprint and more,” FedEx said during the announcement.
Before the conference call, the company unveiled some of its upcoming reductions to lower costs.
In Canada, FedEx Ground operations and personnel will transition to FedEx Express beginning in April 2024. An estimated 200 contractors are expected to be impacted, with FedEx planning to help them find positions as employees as part of the transition.
Subramaniam said this move will save FedEx more than $100 million in FY 2025.
The company said it did this because most of its Canadian business is concentrated in a few markets and Subramaniam said currently FedEx Express and Ground are about “50-50” in Canada, and the decision was made to consolidate Ground into Express to create a truly “integrated and unified Canadian network.”
FedEx Express, which is the company’s largest division, made $10.4 billion in revenue for the quarter, down 13% from $11.9 billion the year before. Operating income declined from $886 million in 2022 to $430 million this year, a 51% dip year-over-year.
FedEx Ground made $8.3 billion in revenue versus $8.5 billion in the year-ago period. But its income increased from $849 million to $1 billion.
FedEx Freight had an operating income of $448 million, down from $602 million. FedEx Freight made $2.3 billion for the quarter, down 18% from $2.8 billion.
Going forward, FedEx will be paying its pilots more if they ratify a new labor deal with voting beginning July 5.
The Air Line Pilots Association said it will give them a 30% pay raise and significantly improved pension benefits,
The union’s Executive Council is recommending it be approved.
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