FedEx announced disappointing results in its first-quarter earnings Thursday, especially in its FedEx Express segment. As a result, the company plans to cut costs by between $2.2 billion and $2.7 billion in fiscal year 2023.
The Memphis logistics giant made $23.2 billion in revenue for the 2023 fiscal year’s first quarter, a 5.4% increase from the year-before quarter’s $22 billion. The company posted an adjusted net income of $905 million, a 23.9% drop from last year’s $1.19 billion.
The figures come as no surprise after the company released a preliminary earnings report last week for its first quarter, ended Aug. 31, in which it withdrew its previous guidance for fiscal year 2023 and declared that the slowing of the global economy had impacted business more than expected. CEO Raj Subramaniam blamed decreased demand and volume softness as well as increased operating costs due to inflation, prompting the company to announce the aggressive cost-reduction plan.
FedEx said it expected those economic factors to persist, predicting the world market to enter a recession. On the day of the announcement, Sept. 15, FedEx stock plunged more than 20%, one of its biggest single-day drops ever.
“We’re moving with speed and agility to navigate a difficult operating environment, pulling cost, commercial, and capacity levers to adjust to the impacts of reduced demand,” said Subramaniam in Thursday’s earnings report. “As our team continues to work aggressively to address near-term headwinds, we’re meaningfully strengthening our business and customer experience, including delivering an outstanding peak.”
The company made $11.1 billion in revenue for the quarter, a 1% increase from $11 billion the year before. Its operating income dropped 69% from $567 million last year to $174 million this year.
The earnings report projected expected cost savings of $1.5 billion to $1.7 billion at FedEx Express in fiscal 2023, including reducing flight frequencies and temporarily parking aircraft.
FedEx Ground, meanwhile, fared only slightly better, coming in $300 million below expectations. The company made $8.2 billion in revenue versus $7.7 billion in the year-before quarter. Its operating income increased from $671 million to $694 million.
The earnings report projected expected cost savings of $350 million to $500 million at FedEx Ground in fiscal 2023, including closing select sort operations, suspending certain Sunday operations and other linehaul expense actions.
FedEx Freight, on the other hand, did well during the quarter, making $2.7 billion in revenue, up from $2.3 billion the previous year, and increasing operating income by 67%, from $390 million to $651 million.
Other cost-saving initiatives include closing some FedEx office and corporate office locations and reducing vendor utilization to save the company another $350 million to $500 million. Additionally, the report announced package rate increases going into effect Jan. 2, 2023. Rates for FedEx Express, FedEx Ground and FedEx Home Delivery will rise by an average of 6.9%, and FedEx Freight rates will increase by an average of 6.9%-7.9%.
After the preliminary earnings release last week, FedEx stock continued to drop, trading at $151.77 per share Thursday afternoon, a 43% decrease from its 52-week high of $266.79. However, stock prices increased slightly following the final report, closing at $155.20.
source: The Commercial Appeal