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US transport giant FedEx Corp. misses its Q1 FY2023 earnings targets and eventually withdraws its forecasts after disappointing preliminary results
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FedEx Express’ preliminary results show a revenue shortfall of about US$500 million while FedEx Ground’s revenue also missed the company group’s by about $300 million
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FedEx Corp sees further weakness in second-quarter conditions despite its aggressive cost-cutting, such as cancelling certain planned network capacity and other projects
Sliding global volume in the final weeks of its fiscal first quarter has made US transport giant FedEx miss profit targets and eventually withdraw its forecasts for the period, the group said in Memphis, Tennessee, on September 15.
The company said FedEx Express’ preliminary results were particularly impacted by macroeconomic weakness in Asia and service challenges in Europe that led to a revenue shortfall of about US$500 million in this segment relative to company forecasts.
FedEx Ground’s preliminary revenue also missed the company forecasts by about $300 million, the group said in a press release.
The disappointing preliminary first-quarter financial performance and expectations the volatile operating environment will continue, FedEx withdrew its FY2023 earnings forecast provided on June 23, 2022.
FedEx said while pushing aggressive cost-cutting, such as cancelling certain planned network capacity and other projects, it expects second-quarter business conditions to further weaken.
In April, FedEx Express announced it would expand fivefold its Philippine air freight hub at Clark International Airport to enable the facility to operate as a transshipment point for packages.
While FedEx took immediate and decisive action to adjust its cost base, the impact of cost actions lagged volume declines, and operating expenses stayed high relative to demand, it said.
“Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the US. We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first-quarter results are below our expectations,” said Raj Subramaniam, FedEx Corp. president and chief executive.
“While this performance is disappointing, we are aggressively accelerating cost reduction efforts and evaluating additional measures to enhance productivity, reduce variable costs, and implement structural cost-reduction initiatives. These efforts are aligned with the strategy we outlined in June, and I remain confident in achieving our fiscal year 2025 financial targets.”
Cost initiatives
The company expects the benefits of cost actions to mitigate the effects of reduced demand throughout the remainder of fiscal 2023. These cost actions include:
- Reduction in flight frequencies and temporarily parking aircraft;
- Volume-related reductions in labor hours and other linehaul expenses;
- Consolidation of certain sort operations to drive productivity;
- Reduction of Sunday operations at a number of FedEx Ground locations;
- Cancellation of certain planned network capacity and other projects;
- Deferral of staff hiring;
- Closure of over 90 FedEx Office locations; and
- Identification of five corporate office facilities to be closed, with additional real estate rationalization planning under way.
For the second quarter of FY2023, FedEx is expecting revenue of $23.5 billion to $24.0 billion, earnings per diluted share of $2.65 or greater, and EPDS excluding costs related to business optimization initiatives and business realignment activities of $2.75 or greater.
FedEx said capital spending for FY2023 has been revised to $6.3 billion, from $6.8 billion.
The group reaffirmed its earlier announced plan to buy back $1.5 billion of FedEx common stock in FY2023. It expects to repurchase $1 billion of FedEx common stock in the second quarter.
The warning pushed FedEx shares down over 15% in after-hours trading in New York. It came as consumers around the world are grappling with higher costs of necessities such as food, fuel and shelter.
