FedEx said Tuesday it would cut another $1 billion in costs after weak demand dented its quarterly profit.
The company announced in September cost-cutting measures that included grounding planes and closing some offices in the face of reduced global demand. It also increased package delivery rates. At the time, CEO Raj Subramaniam warned that the economy would enter a “global recession.”
FedEx said on Tuesday it will be able to cut another $1 billion beyond what it forecast in September, to bring total fiscal savings by 2023 to $3.7 billion compared with its previous plan for the year.
“Our teams have an unwavering focus on quickly implementing cost savings to improve profitability,” Chief Financial Officer Mike Lenz said in an earnings release. “As we look to the second half of our fiscal year, we are accelerating our progress on cost actions, helping to offset continued softness in overall volume.”
Most of the additional cuts will come from FedEx’s Express unit, such as additional flight cuts, Lenz said on an earnings call. Other cuts include adjustments to the ground unit in pickup and delivery.
The company has reduced US domestic flight hours by 6% and international flight hours by 7% so far this year. By the end of the fiscal year, FedEx said, it expects to park 11 additional planes, mostly wide-body planes.
FedEx shares rose more than 3% in after-hours trading.
Here’s FedEx’s Q2 2023 performance, compared to Refinitiv’s consensus estimates:
- Earnings to share: $3.18 adjusted vs. $2.82 is expected
- Income: $22.8 billion vs. $23.74 billion is expected
FedEx’s net income fell to $788 million in the three months ended November. 30, down from $1.04 billion a year earlier. Sales fell to $22.8 billion in the period, down from $23.5 billion a year earlier, below estimates.
Adjusting for one-time items, FedEx reported earnings per share of $3.18, ahead of analysts’ estimates but well above the $4.83 per share it reported in the same period last year past
The company recorded particular weakness in its Express unit, with operating income in this segment down 64% from last year. FedEx Ground operating income increased 24% year over year and FedEx Freight operating income increased 32% year over year. All three units were helped by higher yields.
FedEx forecast full-year earnings per share of $13 to $14, a far cry from analysts’ expectations of $14.08 per share.
The company’s shares are down about 36% for the year as of Tuesday’s close, compared with a roughly 20% drop in the S&P 500.