Sunday, January 29, 2023
HomeMarketFedEx expects to cut costs by an extra $1 billion as earnings...

FedEx expects to cut costs by an extra $1 billion as earnings beat but sales come up well short of target

- Advertisement -

FedEx Corp. on Tuesday said it planned to slash an extra $1 billion in costs beyond what it outlined in September, bringing those total expected cuts to roughly $3.7 billion, amid what management called a “weaker demand environment” that led to softer-than-expected sales for its second quarter.

The parcel-delivery service reported fiscal second-quarter net income of $788 million, or $3.07 a share, compared with $1 billion, or $3.88 a share, in the same quarter last year. Revenue slipped to $22.8 billion, compared with $23.5 billion in the prior-year quarter.

Adjusted for costs related to “business optimization,” FedEx
earned $3.18 a share, compared with $4.83 the same quarter in 2021.

Analysts polled by FactSet expected FedEx to report adjusted earnings of $2.81 a share on sales of $23.7 billion.

“The FedEx team moved with urgency to make rapid progress on our ongoing transformation while navigating a weaker demand environment,” said Raj Subramaniam, FedEx’s chief executive, in a statement. “Our earnings exceeded our expectations in the second quarter, driven by the execution and acceleration of our aggressive cost-reduction plans.”

Management said that its large, internationally-focused Express segment, which offers expedited air and ground deliveries, suffered a 64% decline in operating income, as global package volumes fell. But the company’s Ground division, where trucks ship packages in the U.S. and Canada, got a boost in operating income, as it squeezed more sales out of packages shipped.

FedEx forecast full-year earnings per share of $13 to $14. For the full fiscal year, FactSet forecast adjusted earnings of $13.93 a share, with revenue of $94.358 billion.

Shares rose 2.1% in after-hours trade.

FedEx’s financials and its stock over the past few months have been upended by a global drop in shipping demand — including for the key holiday season. In September, the company announced up to $2.7 billion in cost cuts for the fiscal year ahead as concerns grew about the direction of an inflation-scarred economy. Even as it scaled back, FedEx also said it would raise shipping rates next month.

A big portion of those cuts will come from FedEx’s Express segment, which offers expedited air and ground deliveries, as the company pulls back on flight frequencies and parks planes. Cuts elsewhere will come from halting Sunday operations in its ground service, and closing locations that offer copying and printing services.

More analysts have begun asking questions about whether FedEx’s management team is suited to the task. Subramaniam, in September, expressed confidence in the current team.

FedEx stock has fallen 35% this year. By comparison, the S&P 500 Index
is down around 19%.


- Advertisment -

Most Popular