FedEx profits improve as cost cutting takes effect
22 / 03 / 2024
FedEx Express is encouraging its pilots to move to a regional carrier, flying smaller jets. Image Source: FedEx Express
FedEx saw its profits improve in the third quarter of its fiscal year despite revenues coming under pressure due to weak market conditions.
The express giant saw its fiscal year third-quarter revenues decline by 2% year to $21.7bn, but operating income improved by 19% on last year to $1.2bn and net income was up 14% to $879m.
The company’s share price was up on Friday morning as a result of its better-than-expected profit performance.
FedEx said the improved profit performance was a result of its DRIVE cost-cutting scheme that aims to reduce expenses by $4bn.
In the third quarter, its ground network achieved savings of $290m, air costs were down $110m and general/admin expenses reduced by $150m.
The savings in the air network are down to a “focus on structural transformations and reduction of flight hour costs” and optimizing its network in Europe.
The company has also parked aircraft to help reduce costs and in response to weaker demand levels.
Last year, FedEx said it planned to reorganise its air network to better suit the demands of various shipment types as part of efforts to cut costs.
The move will allow the company to prioritise shipments such as e-commerce to meet demands for faster transits while shipments such as general freight can be shipped at less busy times and outside of the hub and spoke system.
The revenue decline was the result of weaker demand and a move to less expensive transport services from customers.
Looking at third-quarter divisional performance, FedEx Express saw revenues decline 2% to $10.1bn but operating income was up 96% to $233m.
FedEx Express operating results improved due to lower structural costs resulting from DRIVE initiatives and the benefit from one additional operating day, partially offset by lower revenue.
FedEx Ground saw revenues improve by 1% to $8.7bn and operating profits improved by 12% to $942m.
FedEx Ground operating results increased due to lower structural costs resulting from DRIVE initiatives, higher base yield, and reduced self-insurance costs.
Cost per package was flat, as lower line-haul expense and improved dock productivity offset higher first- and last-mile costs.
Revenues at its Freight segment slipped by 26% to $2.1bn and operating profit was down 12% to $340m.
FedEx Freight operating results decreased due to lower fuel surcharges, reduced weight per shipment and lower shipments, partially offset by higher base yield and the benefit from one additional operating day.
Last year’s third-quarter operating income included a $30m gain on the sale of a facility.
The company also announced a $5bn share repurchase programme.
