FedEx’s Aggressive Cost Cuts Beat Weaker Demand in Battle for Investor Sentiment

The package delivery company FedEx Corp. is targeting more than $4 billion in cost reductions in the coming months. But investors, after beating the stock in September, catapulted it higher in after-hours trading on Thursday as those efforts to cut spending and keep prices higher start to seep into the financial services despite continued weakness in shipping demand.

Chief Executive Raj Subramaniam said during the company’s third-quarter earnings call Thursday night that FedEx


had saved $1.2 billion year-over-year in that quarter. He also signaled more restraint in the future – potentially to the detriment of staffing.

After announcing last month that FedEx would cut its workforce by 10%, Subramaniam said the company would “continue to aggressively manage the workforce.” It expects the U.S. workforce to be 25,000 fewer by the end of its fiscal year, which is due to end in late May. FedEx plans to hold an “update event” on its cost-cutting campaign on April 5.

During Thursday’s call, executives said they would cut flight hours and other costs, and park or phase out more planes. Chief Customer Officer Brie Carere said the company has started to see “some moderation” in a tougher demand environment characterized by lower parcel volumes and sales.

Services in Europe are progressing while activity in Asia remains uneven. At FedEx Ground, FedEx’s ground shipping business in the United States and Canada, results were helped by an 11% increase in revenue per package, as well as cost reductions. Carere said FedEx gets more for “getting more for peak surcharges,” or delivery charges used to offset swinging fuel costs.

Shares jumped 11.4% after hours on Thursday.

FedEx reported fiscal third-quarter net income of $771 million, or $3.05 per share, compared with $1.11 billion, or $4.20 per share, in the same quarter last year. Revenue fell to $22.2 billion from $23.6 billion in the same quarter last year.

Adjusted for “business optimization” and other costs, FedEx earned $3.41 per share, down from $4.59 per share a year earlier. Analysts polled by FactSet expect adjusted earnings per share of $2.71, on revenue of $22.72 billion.

For the full year, FedEx said it expected earnings per share of $14.60 to $15.20, up from previous guidance.

“We have continued to act urgently to improve efficiency, and our cost-cutting measures are needed, leading to an improved outlook for the current fiscal year,” Subramaniam said in FedEx’s earnings release. released earlier Thursday afternoon.

FedEx raised shipping prices and cut air and ground shipping on weaker demand for e-commerce and deliveries, after a boom in demand during the pandemic shutdowns.

However, these efforts have emboldened analysts. Stifel Nicolaus analyst Bruce Chan, in a research note dated Wednesday, said FedEx’s efforts to cut costs presented a “compelling investment opportunity at the current, heavily discounted valuation.” Still, he noted that a faltering economy presented “material risks” for the company.

Stephens analyst Jack Atkins, in a note late Thursday, was upbeat after FedEx’s results.

“While we believe FDX has largely been a consensus hedge fund in recent months and a strong quarter was expected, we believe the magnitude of momentum and the upward revision to guidance should result in outperformance. meaningful tomorrow,” he said.

FedEx shares have fallen 12.4% over the past 12 months. In comparison, the S&P 500 index


fell by 10% over this period.

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