FedEx’s Forecast Falls Short of Estimates Amid Weak Demand

FedEx Corp. gave a 2024 profit outlook below analyst expectations as a drop in package demand offsets Chief Executive Officer Raj Subramaniam’s $4 billion cost-cutting plan.

(Bloomberg) — FedEx Corp. gave a 2024 profit outlook below analyst expectations as a drop in package demand offsets Chief Executive Officer Raj Subramaniam’s $4 billion cost-cutting plan. 

Adjusted earnings in the next fiscal year will be $16.50 to $18.50 a share, the Memphis-based courier projected Tuesday in a statement. The midpoint of $17.50 compares with the $18.31 average of analysts’ estimates compiled by Bloomberg.

FedEx’s shares fell 3.1% in premarket trading in New York on Wednesday. Rival courier companies in Europe also fell in early trading with Deutsche Post down 2.7% and PostNL falling 1.4%.

The company has sought to reduce expenses as the industry deals with a decline in package volume following two years of surging demand fueled by the pandemic-driven online shopping. That has reversed recently as consumers shift spending toward entertainment and services rather than buy goods online. Subramaniam told analysts on a conference call that US headcount fell by 29,000 jobs in the past year.

FedEx aims to improve profitability in the coming year as it grapples with “a challenging demand environment,” Chief Financial Officer Michael Lenz said in the statement. Lenz will retire effective July 31, the company said in a separate announcement.

The company reported sales of $21.9 billion in the fourth quarter, which ended May 31, marking a third consecutive drop. Analysts had expected $22.7 billion. Adjusted earnings per share were $4.94, down from $6.87 a year earlier and slightly more than analysts’ expectations of $4.88. FedEx’s adjusted operating margin was 8.1%, below the 9.2% of a year earlier. 

The Express unit has been hit particularly hard. During the pandemic, the business was swamped with packages as port congestion forced some shippers to send their wares by air freight. Maritime shipping has returned to normal and commercial airlines are ramping up cargo operations, forcing FedEx to reduce flights and park older planes.

Operating results in the quarter from FedEx Express “declined due to lower global volumes, partially offset by decreased expenses and higher US domestic yields,” the company said. The Ground unit also faced lower volume, though it benefited from “higher revenue per package and cost-reduction actions.”

FedEx Ground has also gotten a lift from shippers that already started shifting volume to FedEx from rival United Parcel Service Inc. on concern that UPS’s unionized workforce could potentially go on strike as soon as Aug. 1.

Earnings Forecast

With the 2024 earnings goal, FedEx will look to avoid the missteps that forced the company to slash last year’s target. Subramaniam set the expectations at this time a year ago and then had to reduce the goal in September while introducing the accelerated cost-cutting plan that was raised in December to $4 billion of savings by fiscal 2025. More recently, he said the company would be able to save another $2 billion by fiscal 2027 from a plan to integrate its two distinct delivery networks.

FedEx expects its plan to reduce costs permanently by $1.8 billion in fiscal 2024. 

During the past quarter, sales at the Express business fell 13% to $10.4 billion on a 3% decline in average price per package and a 7% decline on package volume.

The Ground unit had sales of $8.3 billion, a 2.3% drop from a year earlier and just slightly below analysts’ expectations of $8.4 billion. The average price per package rose 4.9% at ground, but volume fell 6%.

(Updates with premarket shares in third paragraph.)

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