As was the case in earnings for the fiscal second quarter, fiscal third quarter earnings results for Memphis-based global freight transportation and logistics services provider FedEx were impacted by the ongoing pair of demand weakness and inflation.
Quarterly revenue—at $22.2 billion—was off 6% annually, and net income—at $865 million was below the $1.22 billion recorded a year ago. Diluted earnings per share—at $3.41—fell 7.4%.
Company officials said quarterly results were negatively affected by continued demand weakness, particularly at FedEx Express and added that operating income was negatively affected by the effects of global inflation, which were partially offset by U.S. domestic yield improvement and cost-reduction actions.
“I am proud of the FedEx team, who delivered outstanding service to customers during our peak season while also making solid progress on our transformation initiatives,” said Raj Subramaniam, FedEx Corp. president and chief executive officer, in a statement. “We’ve continued to move with urgency to improve efficiency, and our cost actions are taking hold, driving an improved outlook for the current fiscal year.”
FedEx Express revenue—at $10.3 billion—was down 8%, due to lower global volumes, which the company said were partially offset by a 3% increase in revenue per package. And it added that FedEx is continuing to implement volume-related and structural cost-reduction actions to mitigate ongoing demand weakness.
FedEx Ground revenue—at $8.6 billion—was off 2.3%, while operating income was up nearly 18%, to $844 million, driven by an increase in revenue-per-package and cost-reduction actions that were partially offset by lower package volume, higher infrastructure costs, and increased other expenses.
The company’s less-than-truckload unit, FedEx Freight, saw revenue fall 3%, to $2.186 billion, with operating income up 13%, to $386 million, due to an 11% increase in revenue per shipment, as well as a gain on the sale of a facility, partially offset by decreased shipments.
Total quarterly package revenue—at $8.256 billion—fell 7% annually, and total U.S. package revenue—at $3.989 billion—decreased 4.5%. Total international export package revenue—at $3.264 billion—was off 11%.
“Our cost reduction actions supported margin expansion at both ground and freight, but have not yet fully offset the impact of continued pressures at Express,” said Subramaniam on an earnings call yesterday. “Results at Express came in below where they need to be and below the potential we know exists in this business. We’re committed to addressing these cost imbalances, and we will be taking further actions in the coming months, including a more pronounced readjustment of the air network. Because of the magnitude of changes, we are planning across our air network and our continued need to maintain high service levels, there’s a lag in the timing of expense adjustments. We expect to see sequential progress in the fourth quarter. Overall, our efficiency efforts are gaining traction ahead of schedule. And I’m pleased that this translates into an improved earnings outlook for fiscal year ‘23.”
Mike Lenz, FedEx EVP and CFO, said on the call that, for the fiscal fourth quarter, FedEx expects market conditions to continue to negatively impact revenue and operating profit.
“However, on a sequential basis, we expect FedEx’s fourth quarter results to follow our historical seasonal pattern, representing the high watermark on the year,” he said. “We will continue to execute on the previously identified cost actions and identify additional opportunities to reduce costs in order to mitigate the impact of volume declines on our operating results. As part of these reductions, we will manage capacity to lower demand levels, including further reducing flight hours at Express and reducing Sunday operations, closing certain sort operations and taking other line-haul expense actions at Ground. We are executing targeted actions to reduce shared and allocated overhead expenses, reducing vendor utilization, deferring certain technology projects and discontinuing same-day city operations at FedEx Office. In addition, we expect to achieve savings related to further headcount attrition and the elimination of certain global officer and director positions, which we announced in February. Putting these factors together, our updated expectation for full year adjusted earnings is $14.60 to $15.20 per diluted share.
In September, FedEx said it is taking various cost actions through the end of fiscal 2023, with a focus on mitigating the effects of reduced demand, including:
- 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
On the company’s earnings call in September, Subramaniam said that for fiscal year 2023, it was prioritizing cost actions to generate $2.2 billion to $2.7 billion of savings, of which about $1 billion will be permanent. That estimate was updated during its fiscal second quarter earnings release, to around $3.7 billion in savings relative to the company’s initial fiscal 2023 business plan.
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