FedEx paring costs, grounding more planes as margin pressure persists

6:34 am Wednesday, June 21st, 2023

(This June 20 story has been corrected to change share repurchase figure to $2 billion, from $2 million, in paragraph 10)

(Reuters) – FedEx, which is slashing costs to protect profits as demand wanes, said on Tuesday that ongoing “demand challenges” prompted its plans to ground 29 more aircraft in the fiscal year that started on June 1.

The global shipping downturn has hurt margins for the sector and FedEx’s challenge is matching costs and capacity to lower demand.

E-commerce has been particularly hard hit as the pandemic-driven online shopping bubble burst when consumers returned to stores, resumed eating at restaurants and started traveling again.

FedEx CEO Raj Subramaniam said on a conference call with analysts that the fresh cost-cutting moves would support sustained profit improvement in the current 2024 fiscal year “through an environment that we expect to remain marked by demand challenges, particularly in the first half.”

The first half of FedEx’s fiscal year runs through November.

Last fiscal year, FedEx slashed 29,000 jobs, retired 18 planes, shuttered offices and pared back profit-sapping Sunday deliveries in a bid to cut $4 billion in permanent costs by the end of its 2025 financial year.

Shares in the company fell 2.7% in extended trading on Tuesday after FedEx posted adjusted profit of $4.94 per share for the fourth quarter ended May 31, compared with $6.87 per share a year earlier.

Its flagship Express service, which depends on aircraft to quickly whisk packages to recipients, reported weakness in the latest quarter on softer demand and customers trading down to slower and less-expensive transportation options, although executives said margins in that business would improve.

For fiscal 2024, FedEx forecast flat to low-single-digit-percent revenue growth versus the prior year. That would put the range of adjusted earnings, excluding items, at $16.50 to $18.50 per share.

The company said it would buy back $2 billion of its common stock in the new fiscal year.

It also said Chief Financial Officer Michael Lenz would retire effective July 31. He will remain a senior adviser to the company until Dec 31.

(Reporting by Priyamvada C in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Matthew Lewis, Cynthia Osterman and Jamie Freed)