FedEx (NYSE:FDX) Corp parcelled disappointing first quarter 2023 results, together with rate hikes and cost-cutting measures, as the delivery company said its revenue decreased due to a slowdown in global shipping volume.
Revenues came in at US$23.3 billion, missing analysts' expectations of $23.59 billion. Adjusted earnings per share were US$3.44, below estimates of $5.14. FedEx shares were at a 52-week low today, closing at US$154.80.
The Memphis, Tennessee-based company said its FedEx Express, FedEx Ground, and FedEx Home Delivery rates would increase by an average of 6.9% in the new year. Rates for FedEx Freight will increase by an average of 6.9% to 7.9%, depending on each customer’s transportation rate scale.
READ: FedEx sees first quarter missing estimates, pulls full-year forecast amid global demand warning
At the same time, FedEx said it expects to realize fiscal 2023 cost savings of $2.2 billion to $2.7 billion.
In 1Q, the company said it fulfilled approximately $300 million of these savings and that it expects to realize about $700 million in savings in the second quarter. Among the cost cutting measures, FedEx said it plans to reduce flight frequencies, temporarily park aircraft, along with suspending Sunday operations and closing a number of corporate office locations.
The company also announced a program to accelerate progress toward $4 billion in cost savings by 2025 under a “Deliver Today, Innovate for Tomorrow” strategy.
FedEx CEO Raj Subramaniam said in a statement: “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.”
“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,” Subramaniam added.
The company said its 1Q consolidated operating results were adversely affected by global volume softness that accelerated in the final weeks of the quarter due to weakening economic conditions.
In addition, the company said results were negatively affected by service challenges at FedEx Express. Yield improvements, including fuel surcharge increases, more than offset the decline in volume, resulting in an increase in revenue for the quarter, according to FedEx.
In response, the company said it has implemented cost actions and continued to focus on yield management and revenue quality to mitigate the effect of volume declines. However, the impact of cost actions lagged volume declines and operating expenses remained high relative to demand.
The company noted that:
- FedEx Express operating income declined 69% due to an 11% year-over-year reduction in global package and freight volume.
- FedEx Ground operating income increased 3% due primarily to yield management actions, including higher fuel surcharges, and growth in FedEx Home Delivery.
- FedEx Freight operating income climbed 67%, driven by yield management actions, including higher fuel surcharges, partially offset by higher salaries and employee benefits and lower shipments.
FedEx said it is forecasting 2Q fiscal 2023 revenue of $23.5 billion to $24.0 billion and earnings per diluted share of $2.65 or greater.
FedEx CFO Michael C. Lenz said: “I am confident the cost actions we’re implementing with urgency will enhance efficiency and drive improved profitability in support of our long-term financial targets.”
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