FedEx optimistic after 3Q earnings, but more cost-cutting measures on the way

FedEx continues to see demand weakness, particularly at FedEx Express, the company announced in its third-quarter earnings Thursday. FedEx made $22.2 billion in revenue for the 2023 fiscal year’s third quarter, down from $23.6 billion the year-before quarter.

The Memphis-based company posted an adjusted operating income of $1.17 billion, down from last year's $1.33 billion. However, executives said third-quarter results were ahead of their expectations and expressed optimism about the fourth quarter, although more cost-cutting measures — from managing headcount to grounding flights — are on the way.

FedEx’s third quarter ended on Feb. 28.

Company executives warned in December that they expected third-quarter earnings to be lower than second-quarter earnings, a trend the company has seen in previous years. Last quarter FedEx made $22.8 billion in revenue and posted an adjusted operating income of $1.21 billion.

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“I am proud of the FedEx team, who delivered outstanding service to customers during our peak season while also making solid progress on our transformation initiatives,” President and CEO Raj Subramaniam said. “We’ve continued to move with urgency to improve efficiency, and our cost actions are taking hold, driving an improved outlook for the current fiscal year.”

On a call with investors, Subramaniam also praised FedEx employees for their performance during numerous severe weather events across the country and said the company was "ahead of our expectations in what remains a challenging demand environment."

He also said the company would "continue to aggressively manage headcount" and that by the end of this fiscal year, U.S. headcount would be down about 25,000 people year-over-year.

FedEx Express, FedEx’s largest company, made $10.3 billion in revenue for the quarter, a decrease from $11.3 billion in the third quarter of last year. Operating income fell from $520 million to $119 million.

FedEx Ground reported $8.7 billion in revenue versus $8.8 billion the year-before quarter. Its operating income rose from $641 million to $844 million.

Ground results improved this quarter "primarily due to an 11% increase in revenue per package and cost-reduction actions. These factors were partially offset by lower package volume, higher infrastructure costs and increased other operating expenses," according to the earnings report.

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Thursday’s earnings report comes after months of turbulence for the company, including plans to cut about $3.7 billion over the current fiscal year due to continually decreasing demand and high operating costs. In recent months FedEx also announced cuts to officer and director team jobs and additional furloughs at FedEx Freight.

Subramaniam told investors progress had been made in realigning the company's cost structure, particularly at Ground and Freight, but said more progress needed to be seen at Express. To achieve that, the company will be implementing significant changes to the air network, which Subramaniam said is expected to bear results in the fourth quarter.

Following the grounding of nine aircraft and an 8% reduction of flight hours in the third quarter, executives said there would be further reductions in flight hours and another six aircraft grounded in the fourth quarter, among other changes.

"We are right-sizing our cost base to match today's realities and creating a more efficient and agile network," Subramaniam said. "We're not simply taking out cost. We are simultaneously focused on running our business more efficiently, flexibly and profitably which will create significant value for our stockholders in the years to come."

FedEx shares closed at $204.05 Thursday, up from $169.99 on Dec. 21, the day after the company's last earnings call. Share prices remain below the 52-week high of $248.76.

FedEx reported adjusted earnings per share of $3.41.

Corinne S Kennedy covers economic development, real estate and healthcare for The Commercial Appeal. She can be reached via email at Corinne.Kennedy@CommercialAppeal.com

This article originally appeared on Memphis Commercial Appeal: FedEx earnings: Optimism after 3Q but more cost-cutting actions on way