FedEx’s aggressive cost-cutting beats weaker demand in battle for investor sentiment

Parcel supplier FedEx Corp. is targeting more than $4 billion in cost cuts in the coming months. But investors, after pummeling the stock in September, lifted it in after-hours trading on Thursday as these efforts to cut costs and keep prices higher begin to make headway on the economy despite continued weakness in shipping demand.

CEO Raj Subramaniam said during the company’s third-quarter earnings call late Thursday that FedEx


had saved $1.2 billion annually in that quarter. He also showed more restraint going forward – possibly at the expense of personnel.

After FedEx announced last month that it would cut its executive positions by 10%, Subramaniam said the company “will continue to aggressively manage staff.” He expected the US workforce to fall by 25,000 by the end of the fiscal year, and is scheduled to be completed by the end of May. FedEx plans to hold an “update event” on its cost-cutting campaign on May 5. April.

During Thursday’s call, executives said they would cut flight hours and other costs and park or retire more jets. Chief Customer Officer Brie Carere said the company had begun to see “some moderation” in tougher demand, marked by lower package volumes and sales.

Services improved in Europe, while business remained uneven in Asia. At FedEx Ground – FedEx’s ground transportation business in the US and Canada – results were boosted by an 11% increase in revenue per package and cost cuts. Carere said FedEx got more by “getting more peak surcharges,” or delivery fees that are used to offset fluctuating fuel costs.

Shares rose 11.4% after hours on Thursday.

FedEx reported third-quarter pretax 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. Turnover fell to $22.2 billion from last year’s $23.6 billion.

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

For the full year, FedEx said it expects full-year earnings per share of $14.60 to $15.20, up from its previous forecast.

“We have continued to take urgent steps to improve efficiency and our cost measures are gaining momentum, which improves the outlook for the current fiscal year,” Subramaniam said in FedEx’s earnings release, released earlier Thursday afternoon.

FedEx has raised shipping rates and cut air and ground shipments due to weaker demand for e-commerce and deliveries after a spike in demand during pandemic restrictions.

However, these efforts have encouraged analysts. Stifel Nicolaus analyst Bruce Chan said in a research note on Wednesday that FedEx’s efforts to cut costs made it “an attractive investment opportunity at the current, deeply discounted valuation.” Still, he noted that the fluctuating economy posed “substantial risks” to the company.

Stephens analyst Jack Atkins sounded upbeat late Thursday after FedEx’s results.

“While we believe FDX has largely been the consensus hedge fund for the past few months and expected a solid quarter, we believe the magnitude of the move and the upward revision to guidance should translate into a significant outperformance tomorrow,” he said.

FedEx shares are down 12.4% over the past 12 months. For comparison, the S&P 500 index


has decreased by 10 percent during this period.

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