FedEx Corp.
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FedEx to cut costs, increase freight rates

Sept. 23, 2022
Analysts raise their eyebrows over cost-cutting plans while the company’s leaders say they will raise their freight rates by about 7% at the beginning of 2023.

The top executives of FedEx Corp. faced a barrage of skeptical questions from analysts on Sept. 22 after reporting first-quarter results they had warned last week would miss expectations, a development they said was due primarily to worsening economic activity.

Memphis-based FedEx, which is No. 1 on the FleetOwner 500: Top For-Hire Fleets of 2022, posted net income of $875 million for the three months ended Aug. 31, which constituted its first 2023 fiscal quarter. That was down from more than $1.1 billion in the same period a year ago, even though revenues climbed more than 5% to $23.2 billion. The company’s overall operating margin slipped to 5.1% from 6.4% a year earlier.

See also: FleetOwner's 500: Top For-Hire Carriers of 2022

FedEx’s less-than-truckload freight segment, however, grew its operating profits to $651 million versus $390 million as revenues rose 21% to $2.7 billion, pushing its operating margin to nearly 24%. Almost all of those gains came from pricingits composite revenue per shipment climbed to more than $385 from $303 in the summer of 2021as the group’s total shipments per day slipped nearly 5% and the average weight of those shipments declined by about 2%.

President and CEO Raj Subramaniam and his team last week withdrew their earnings guidance for the coming year, saying that “global volume softness” gathered pace in August and created a volatile environment they expect to continue. They sought to reiterate that message Sept. 22 after formally reporting their quarterly numbers, with CFO Mike Lenz saying they are forecasting that the “step change in demand” they have seen of late will endure.

See also: Topsy-turvy times for used trucks

“The basic underlying planning assumption that we are using is that the demand levels that we experienced in late August will continue through rest of the year,” Lenz said. “I don’t have a crystal ball about contagion [from Asia and Europe, where activity fell off more] but rest assured we are to continue to be focused on the things we can control.”

FedEx’s leaders also have outlined plans to cut between $2.2 billion and $2.7 billion in costs this fiscal yearmore than half of which are forecast to come from its FedEx Express aviation unit, but investments in a number of ground facilities also are being canceled or deferredand to build on those cuts with another $4 billion in savings by fiscal 2025. Lenz said the cuts are focused on “flexing in a changed environment with a view to building back differently in the future.”

See also: U.S. Xpress cutting jobs, real estate as part of $25M restructuring

Most analysts on the Sept. 22 call, however, weren’t buying much of what Subramaniam, Lenz, and Chief Customer Officer Brie Carere were selling. They at times pushed the executives on why their peers haven’t issued similar warnings about demand, called the company’s acquisition of TNT Express “an unmitigated disaster” and asked why this cost-cutting plan will work when several others before it didn’t produce sustained success.

Carere also was asked about FedEx’s plans to increase most of its rates by about 7% (and up to 7.9% for LTL customers) starting in January when its volumes are dropping. She responded by saying that the company’s 5.9% price hike at the start of 2022 has proven to be “incredibly sticky” and that its costs have continued to increase this year.

Shares of FedEx (Ticker: FDX) ended after-market trading Sept. 22 at $153. They closed above $204 before last week’s warning and have now lost about 30% of their value over the past six months, cutting the company’s market capitalization to about $40 billion.

About the Author

Geert De Lombaerde | Senior Editor

A native of Belgium, Geert De Lombaerde has more than two decades of business journalism experience and writes about markets and economic trends for Endeavor Business Media publications FleetOwner, Healthcare InnovationIndustryWeek, Oil & Gas Journal and T&D World. With a degree in journalism from the University of Missouri, he began his reporting career at the Business Courier in Cincinnati and later was managing editor and editor of the Nashville Business Journal. Most recently, he oversaw the online and print products of the Nashville Post and reported primarily on Middle Tennessee’s finance sector as well as many of its publicly traded companies.

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