FedEx is convinced its business won’t deliver—at least not in the shape it’s in right now.
The logistics behemoth’s earnings for the quarter ended Aug. 31 fell well below expectations. Spooked by the downward trend, it withdrew its full-year financial guidance.
Just like analysts predicted and its independent contractors feared, FedEx chalked up the poor performance to a “global volume softness,” pointing to a slowdown in deliveries after the pandemic-induced online ordering frenzy tapered off. The firm expects the weaker demand to persist.
To make up for the shortfall, the Tennessee-headquartered company is freezing hiring, closing 90 office locations, parking some cargo aircraft, reducing Sunday ground operations and closing five corporate offices, CEO Raj Subramaniam has said.
On the back of the poor earnings results, FedEx’s stock tumbled 16% after hours on Thursday (Sept. 15).
Charting the drop
Weak links
FedEx’s largest unit, Express, faced a revenue shortfall of about $500 million compared with the company’s forecast due to macroeconomic weakness in Asia and service challenges in Europe, its press release revealed yesterday (Sept. 15).
Revenue at FedEx Ground, which is largely responsible for e-commerce deliveries in the US, was about $300 million below company forecasts.
Quotable
“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.” -Raj Subramaniam, Fedex CEO
A smooth road ahead
Despite the current headwinds and stiff competition from United Parcel Service (UPS) and Amazon, FedEx’s business will persevere.
“It has a network that is extremely hard to replicate and the business is moving towards a capex light model. In addition, the company has an opportunity to make some substantial savings from optimizing operations,” investment advisor Herman Schroeder writes.
Fun fact: Family edition
Started by Frederick Smith in 1971, FedEx pioneered using aircrafts to deliver packages, using the hub and spoke mode. It started ground operations in 1988.
For five decades, Smith was at the helm of the organisation—only in June 2022 did he hand over the reigns to Subramaniam. Today, Smith still owns 7.7% of the business, making him the largest shareholder of the company.
Smith’s son, Richard Smith, was appointed CEO of the Express segment in September 2022.
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