Challenging environment: A worker loads packages into a FedEx truck in San Francisco. The shipping giant FedEx reported better-than-expected fourth quarter earnings with earnings per share of US$4.94 (RM24) from sales of US$21.9bil (RM102bil). — AFP
SAN FRANCISCO: FedEx Corp gave a 2024 profit outlook below analyst expectations as a drop in package demand offsets chief executive officer Raj Subramaniam’s US$4bil (RM18.6bil) cost-cutting plan.
The company has sought to reduce expenses as the industry deals with a decline in package volume following two years of surging demand fuelled 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 US$21.9bil (RM102bil) in the fourth quarter, which ended May 31, marking a third consecutive drop.
Analysts had expected US$22.7bil (RM105.6bil). Adjusted earnings per share were US$4.94 (RM23), down from US$6.87 (RM32) a year earlier and slightly more than analysts’ expectations of US$4.88 (RM22.70).
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 (UPS) on concern that UPS’s unionised workforce could potentially go on strike as soon as Aug 1.
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 US$4bil (RM18.6bil) of savings by fiscal 2025.
More recently, he said the company would be able to save another US$2bil (RM9.3bil) by fiscal 2027 from a plan to integrate its two distinct delivery networks.
FedEx expects its plan to reduce costs permanently by US$1.8bil (RM8.4bil) in fiscal 2024. — Bloomberg
