Consultant Insight: FedEx Express continues to face challenges

Once again , FedEx's latest earnings were less than stellar, despite meeting analysts' expectations. The company exceeded its second-quarter earnings target and the cost reductions it shared in September, but still sees “more work to be done,” Chief Executive Raj Subramaniam said on the company’s Dec. 20 earnings call. “The declining demand trends we saw at the end of Q1 softened further in the second quarter, and we are moving faster and with more determination than ever to accelerate our cost actions," Subramaniam said. For fiscal Q2 2023 ended Nov. 30, FedEx reported overall revenue down 3% year over year to $21.63 billion and operating income down 26.2% YoY at $1.17 billion. [caption id="attachment_76185" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] FedEx's largest division, Express , reported a 6.4% YoY decline in revenue to $10.86 billion and a 64.1% YoY decline in operating income to $341 million. FedEx Express' revenue decline was attributed to volume and yield softness in Europe and Asia. Overall, FedEx Express' international package average daily volumes declined 13.6% YoY while average revenue per piece increased 6.4% YoY. Changing global environment A shift from the faster and more expensive priority service to the longer delivery and less-costly deferred services out of Asia was noted. “In the current economic environment, the market is increasingly shifting to deferred services,” Brie Carere, FedEx’s chief marketing and communications officer, told analysts. “We have the deferred portfolio to capture the shift in demand, and our DRIVE program will ensure we have the correct cost to serve to profitably manage through this market transition.”. Indeed, the company is reconfiguring and optimizing its network to address the changing global environment. “Express is where we have the most work to do and where most reductions are focused,” Chief Financial Officer Mike Lenz said during the call. “A large portion of those savings is coming from reduced flight frequencies.” Year to date, FedEx reduced services on eight international routes and 32 domestic routes and parked five aircraft, Lenz said. Flight hours were subsequently reduced 6% YoY for domestic routes and 7% YoY for international routes. Digital tools for planning, automation Within the European market, FedEx’s focus is on optimization, including rightsizing its intra-Europe air network, Subramaniam noted. The company plans to introduce productivity tools and invest in digital capabilities for planning and automation. FedEx Express will also implement a new U.S. network design in February that will improve pickup and delivery efficiency, and result in cost savings of approximately $300 million annually, according to Subramaniam. Meanwhile, Lenz predicted slowing declines ahead. “As we look to the second half of the year, we expect volume declines to begin moderating at Express and Ground by the end of the third quarter [period ending Feb. 28], with comparisons easing further in the fourth quarter [period ending May 31] as we lap the onset of softer volumes,” Lenz said. Shares of FedEx (NYSE: FDX stocks were up 3.45% to close at $169.99 today. FedEx has a market capitalization of $44.23 billion.

Consultant Insight: FedEx Express continues to face challenges

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