FedEx fights market weakness with continued cost cutting
21 / 09 / 2023
FedEx said it has continued to focus on cost saving initiatives in response to weak express demand as it reported revenue of $21.7bn in its first quarter 2024, ended August 31.
The company attributed a 19% improvement in reported net income to $1.1bn to its ‘DRIVE’ programme t0 improve operational efficiency and reduce expenses.
“First quarter results improved primarily due to the execution of the company’s DRIVE program initiatives and continued focus on revenue quality. The improvement in operating results was partially offset by ongoing demand weakness,” said the company.
Revenue at FedEx Express was down 9% year over year, but the division benefited from reduced operating expenses.
“Volume remained pressured though total Express volume declines moderated sequentially,” noted Brie Carere, executive vice president, chief customer officer.
FedEx Express operating income increased 18% during the quarter.
“Cost reductions and transformation efforts at FedEx Express included structural flight reductions, alignment of staffing with volume levels, parking aircraft, and shifting to one delivery wave per day in the US, all of which more than offset the impact of lower revenue,” added John Dietrich, executive vice president, chief financial officer.
At FedEx Ground, first-quarter revenue was up 3% year over year driven by a 1% increase in volume and 3% increase in yield.
FedEx Ground operating income increased 59% during the quarter, primarily due to yield improvement and cost reductions. Cost per package declined more than 2%, driven by lower line-haul expense and improved dock and first- and last-mile productivity.
“Across the Ground and Express, volumes improved sequentially, aided by the threat of a strike at our primary competitor. We onboarded new customers who valued our service and were committed to a long-term partnership with FedEx, explained Carere.
At FedEx Freight, revenue was down 16% driven by a 13% decline in volume, said FedEx.
FedEx Freight operating income decreased 26% during the quarter driven by lower fuel surcharges and shipments, partially offset by base yield improvement. FedEx Freight completed the planned closure of 29 terminal locations during August.
“We started fiscal 2024 with strong momentum as our global transformation actions take hold and drive improved results,” said Raj Subramaniam, FedEx president and chief executive.
“FedEx Ground had an outstanding quarter which, when combined with improved earnings at FedEx Express and expense controls across the organization, led to our better-than-expected overall financial performance.
“FedEx is well-positioned to continue to deliver improved profitability while becoming an even more flexible, efficient and data-driven organization.”
Looking ahead, FedEx will continue to focus on consolidating FedEx Express, FedEx Ground, and FedEx Services into one company, ‘Federal Express Corporation’, by June next year.