FedEx said Tuesday it would cut $1 billion more in costs after weak demand ate into its quarterly profit.
The company in September announced cost-cutting measures that included parking planes and closing some offices in the face of softening global demand. It also raised package-delivery rates. At the time, CEO Raj Subramaniam warned the economy would enter a “worldwide recession.”
FedEx on Tuesday said it will be able to cut another $1 billion beyond what it forecast in September, to bring the total fiscal 2023 savings to $3.7 billion compared with its earlier plan for the year.
“Our teams have an unwavering focus on rapidly implementing cost savings to improve profitability,” CFO Mike Lenz said in an earnings release. “As we look to the second half of our fiscal year, we are accelerating our progress on cost actions, helping to offset continued global volume softness.”
Most of the additional cuts will stem from FedEx’s Express unit, such as additional flight cuts, Lenz said on an earnings call. Other cuts include adjustments in the Ground unit in pick-up and delivery.
The company has reduced U.S. domestic flight hours by 6% and international by 7% so far this year. By the end of the fiscal year, FedEx said, it expects to park 11 additional aircraft, mostly wide-body planes.
FedEx shares were up more than 3% in after-hours trading.
Here’s how FedEx performed in its fiscal second quarter of 2023, compared with Refinitiv consensus estimates:
- Earnings per share: $3.18 adjusted vs. $2.82 expected
- Revenue: $22.8 billion vs. $23.74 billion expected
FedEx’s net income fell to $788 million in the three months ended Nov. 30, down from $1.04 billion a year earlier. Sales fell to $22.8 billion in that period, down from $23.5 billion a year earlier, falling short of estimates.
Adjusting for one-time items, FedEx posted per share earnings of $3.18, ahead of analyst estimates but well off the $4.83 a share it reported during the same period of last year.
The company posted particular weakness in its Express unit, with operating income in that segment down 64% from last year. FedEx Ground operating income rose 24% from last year, and FedEx freight operating income increased 32% year over year. All three units were helped by higher yields.
FedEx forecast full-year earnings per share of between $13 and $14, just shy of analysts’ expectations of $14.08 per share.
The company’s shares are down about 36% for the year as of Tuesday’s close, compared with the S&P 500’s roughly 20% decline.