FedEx to Slash Costs Over Dim Earnings Forecast - Modern Distribution Management

FedEx to Slash Costs Over Dim Earnings Forecast

Among other cuts, the company says it is reducing flights and closing 90 office locations after projecting major revenue shortfalls.
Memphis, Tennessee-based global shipping company FedEx said Sept. 15 it plans to cut costs, reduce operations and freeze hiring following a worse-than-expected earnings report that projects revenue shortfalls in the hundreds of millions of dollars.

Memphis, Tennessee-based global shipping company FedEx said Sept. 15 it plans to cut costs, reduce operations and freeze hiring following a worse-than-expected earnings report that projects revenue shortfalls in the hundreds of millions of dollars.

In what FedEx is calling “cost initiatives” in response to weakened demand, the company plans to reduce flight frequencies and temporarily park aircraft. FedEx also said it will consolidate some operations and reduce Sunday availability at “a number of FedEx Ground locations.”

New staff hiring has been deferred, and more than 90 FedEx Office locations will be closed, the company said. Five currently unnamed corporate offices also will shutter, as the company announced it would conduct “additional real estate rationalization planning.”

“While the company took immediate and decisive action to adjust its cost base, the impact of cost actions lagged volume declines, and operating expenses remained high relative to demand,” FedEx said in a news release announcing preliminary fiscal 2023 1Q earnings.

The company said weaker demand worldwide — as well as economic and service issues in Asian and European markets, respectively — contributed heavily to FedEx’s decision to cut back. Issues in its domestic ground and international Express segments are projected to create approximately $800 million in revenue shortfalls, the company said.

For its fiscal 2023 first quarter ending Aug. 31, FedEx said its earnings were “adversely impacted by global volume softness that accelerated in the final weeks of the quarter.” Weaker projections for the current fiscal-year quarter have also caused FedEx to withdraw its earnings forecast, which the company provided in June.

For the most recent quarter, the company said it projects revenue for U.S. eCommerce segment FedEx Ground to come in at approximately $300 million below company forecasts. Weakness in Asia and service challenges in Europe have led to a revenue shortfall in the FedEx Express segment of approximately $500 million compared to company forecasts, according to the earnings report.

The company expects revenue of $23.2 billion and earnings of $3.33 per share — below 1Q revenue of $23.6 billion and earnings of $5.14 per share that investors had been expecting, according to the Wall Street Journal.

“Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S.,” said Raj Subramaniam, FedEx CEO and president. “We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first quarter results are below our expectations. While this performance is disappointing, we are aggressively accelerating cost reduction efforts and evaluating additional measures to enhance productivity, reduce variable costs, and implement structural cost-reduction initiatives. These efforts are aligned with the strategy we outlined in June, and I remain confident in achieving our fiscal year 2025 financial targets.”

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