FedEx lowers outlook as profits slide
20 / 09 / 2024
Source: FedEx
FedEx saw revenues and profits decline in its fiscal first quarter as the company faced challenging market conditions, customers opted for less expensive delivery services and operating costs were on the rise.
The express giant saw revenues for the quarter ended August 31 decrease 0.5% year on year to $21.6bn, while operating income declined 21.7% to $1.1bn and net income was down 26.8% to $790m.
The operating margin was down to 5% from 6.8% a year ago.
As a result, the company lowered its revenue growth forecast for the fiscal year to low single-digit percentage rate year over year, compared to the prior forecast of a low-to-mid single-digit percentage increase.
It also now expects earnings per diluted share of $17.90 to $18.90 – before retirement plans accounting adjustment – compared with the prior forecast of $18.25 to $20.25 per share.
The firm’s share price tumbled by around 10% following the announcement of the results.
FedEx said first quarter results were negatively affected by a mix shift, which reduced demand for priority services, increased demand for deferred services, and constrained yield growth.
In addition, higher operating expenses and one fewer operating day negatively affected the quarter’s results.
In its results commentary, the company was keen to promote its DRIVE cost-cutting programme, which it said helped reduce structural costs.
The cost-cutting includes the restructuring of its air network, a programme which is now underway. It has also been offloading older freighters and reducing staff numbers.
“Despite a challenging quarter, we remain focused on transforming our network, improving our efficiency, lowering our cost-to-serve, and enhancing our ability to adapt with speed to evolving market dynamics,” said Raj Subramaniam, FedEx Corp. president and chief executive officer.
“Overall, I remain confident in the value-creation opportunities ahead as we focus on reducing our structural cost, growing revenue profitably, and leveraging the insights from our vast collection of data as we continue to build the world’s most flexible, efficient and intelligent network.”
Source: FedEx
Subramaniam added that the soft industrial economy weighed on B2B volumes, which were weaker than expected.
John Dietrich, FedEx Corp. executive vice president and chief financial officer, added: “Our revised outlook reflects our continued confidence in the execution of our DRIVE initiatives and the effects of our recent pricing actions, which we expect to help offset weaker-than-expected demand trends.”
During an investor call, the company was also asked whether it would benefit from the huge increase in e-commerce volumes out of Asia.
Brie Carere, executive vice president, chief customer officer, said that it had found small opportunities to work with the big two – Temu and Shein – where they need speed or FedEx has spare capacity.
“They will not be a significant growth driver for us and we’re not planning on that,” she said.
FedEx axes 22 757 freighters as express profits remain under pressure
