FedEx revenue falls 2% in last quarter

FedEx reported $21.7 billion in revenue for its third quarter, a reduction of 2% year over year. [caption id="attachment_57138040" align="alignleft" width="300"] (Courtesy/FedEx Express)[/caption] THE BIG PICTURE: Despite the challenging economy that has affected competitors, FedEx had nearly flat revenue for the quarter, which ended Feb. 29. In comparison, UPS revenue for the quarter ending Dec. 31 was down 7.8% YoY to $24.9 billion and DHL Express revenue was down 10% YoY to $27.1 billion. “For the third consecutive quarter, we delivered operating income growth and margin expansion in a declining revenue environment,” FedEx President and Chief Executive Raj Subramaniam said on the company’s March 21 earnings call. “This is a very positive dynamic and a unique one in our industry.” BY THE NUMBERS: FedEx Ground was the only segment that recorded revenue growth in Q3, with FedEx Services leading in revenue loss. Revenue by segment in Q3 was: Express: $10.1 billion, down 2% YoY; Ground: $8.7 billion, up 1% YoY; Freight: $2.1 billion, down 3% YoY; and Services: $64 million, down 26% YoY. Within the Express segment: Package revenue was $8.2 billion, flat from Q3 last year; Freight revenue was $1.6 billion, down 12% YoY; and Operating margin was 2.3%, up 1.1 percentage points YoY. WHAT THEY’RE SAYING: Analysts from J.P. Morgan called FedEx’s gains “surprising” and “ a complete reversal of the disappointing” Q2 earnings . “FedEx hit all the high notes this time with lower CapEx, a reloaded buyback program and a beat in Express off low expectations,” the analysts stated. “FedEx’s view that competition is rational is positive since UPS has sought out share gains, but we still believe that both FedEx and UPS need to shrink over time to hit their long-term margin targets as the fastest growing markets don’t fully utilize their legacy hub and spoke models.” FedEx is indeed shrinking, having reduced its headcount by nearly 22,000 during the past year, Chief Financial Officer John Dietrich said on the earnings call. “As part of responsible headcount management, we ... expect additional [headcount reduction] opportunities in the future as we move forward with our transformation,” Dietrich said. STATE OF PLAY: The company attributed its improved Express operating results to lower structural costs resulting from DRIVE initiatives, as well as the added Leap Day. The DRIVE program, announced in 2023, aims to drive efficiency, lower overhead and improve digital capabilities. FedEx expects DRIVE to generate $600 million in savings in fiscal 2025, according to Subramaniam. “We’re seeing a clear international market shift toward deferred services,” Subramaniam said. “This is tied in part to the rapid growth of many of our e-commerce customers where we are a critical enabler of global trade offering unique solutions for our customers. “Weakness in global trade continues to constrain demand in our international business, which has remained challenged for longer than expected,” he said. “As such, we’re continuing to proactively realign our air network to match capacity to demand.” FLASHBACK: FedEx benefited from UPS labor negotiations in 2023, which drove shippers to switch prov iders. UPS executives estimated at the end of Q2 that one-third of the diverted packages went to FedEx, one-third to the U.S. Postal Service and one-third to regional carriers. “We continued to retain the vast majority of the volume we gained from UPS in the second half of 2023,” Chief Customer Officer Brie Carere said on the earnings call. Subramaniam also touted FedEx’s use of data and analytics to offset the impact of bad weather. FedEx ranked first on Air Cargo Next ’s Freight 50 list of top cargo carriers, flying 19.5 billion cargo tonne kilometers in 2022. The company’s freight forwarding arm, FedEx Logistics , ranked 23rd on Air Cargo Next ’s Power 25 list of the top freight forwarders, forwarding 232,100 tonnes of air cargo in 2022. NOTEWORTHY: The company completed a $1 billion accelerated share repurchase (ASR) transaction during the quarter, according to the earnings report. Approximately 4.1 million shares were delivered under the ASR agreement. FedEx expects to repurchase an additional $500 million of common stock during its Q4, which will bring the fiscal 2024 buyback total to $2.5 billion, according to the report. The FedEx Board of Directors also authorized a new $5 billion share repurchase program, in addition to the existing $600 million that remains available for repurchase under the 2021 authorization. FUTURE LOOK: The company said it is on track to complete its consolidation of Express, Ground and Services by June. THE BOTTOM LINE: “It is my top priority to continue to make the changes necessary to align our air network with an evolving demand environment and unlock the full profit opportunity,” Subramaniam said. MARKET REACTION: Shares of FedEx ( NYSE: FDX ) were up 7.35% from market open to $284.32 as of market close today. FedEx has a market capitalization of $71.1 billion. Register here for Air Cargo Next ’s free webinar, “The Role of Drones in the Future of Air Cargo,” on Tuesday, March 26, at 11 a.m. ET.

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