Weak demand for premium services in the U.S. hurt FedEx Corp.’s first-quarter results.
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The weakness in freight demand isn’t new, and last month the Memphis, Tenn.-based logistics firm said it would reduce headcount across FedEx’s back-office and commercial teams by 1,700 to 2,000 employees.
How bad has been demand? For the first quarter ended Aug. 31, the company missed both Wall Street’s estimates on adjusted diluted earnings per share and on revenue.
FedEx on Thursday posted a 26.9 percent decline in net income to $790 million, or $3.21 a diluted share, from $1.08 billion a year ago, or $4.23. On an adjusted basis, diluted EPS was $3.60 for the quarter, versus $4.55 a year ago. Revenue slipped 0.5 percent to $21.6 billion from $21.7 billion. Wall Street was expecting adjusted diluted earnings per share of $4.43 on revenue of $22.56 billion.
Shares of FedEx on Friday continued to lose ground—down 14.6 percent to $256.39—in mid-morning trading on the Big Board as investors continued to digest the disappointing first-quarter report.
The courier firm said that results were negatively affected by a “mix shift, which reduced demand for priority services, increased demand for deferred services, and constrained yield growth.” It also said it saw impact from higher operating expenses and one fewer operating day. The company has been implementing initiatives to reduce structural costs, which provided a partial offset. Its Drive transformation program aims to reach $1.8 billion in cost reductions throughout 2024. The cost-cutting initiative is expected to generate $4 billion in savings by 2025 and an additional $2 billion by 2027.
“Despite a challenging quarter, we remain focused on transforming our network, improving our efficiency, lowering our cost-to-serve, and enhancing our ability to adapt with speed to evolving market dynamics,” FedEx’s president and CEO Raj Subramaniam said. “Overall, I remain confident in the value-creation opportunities ahead as we focus on reducing our structural cost, growing revenue profitably, and leveraging the insights from our vast collection of data as we continue to build the world’s most flexible, efficient and intelligent network.”
The company said that the lower U.S. domestic priority package volume in the quarter was partially offset by higher international economy package volume. In addition to reduced priority shipments, freight operating results also fell due to a decline in weight per shipment.
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The company in June merged its FedEx Ground and FedEx Services into Federal Express, and became a single company operating a unified, fully-integrated air-ground express network.
FedEx revised its outlook for Fiscal 2025 and now expects a low single-digit percent revenue growth rate year-over-year. Diluted EPS was guided to $20 to $21, versus prior guidance of $20 to $22 per share.
FedEx reaffirmed its forecast of $2.2 billion in permanent cost reductions from its Drive transformation program.
“Our revised outlook reflects our continued confidence in the execution of our DRIVE initiatives and the effects of our recent pricing actions, which we expect to help offset weaker-than-expected demand trends,” John Dietrich, executive vice president and CFO, said. :We will continue to manage our capital prudently, and remain committed to our plan to return $3.8 billion to stockholders this fiscal year.”
FedEx last month implemented demand surcharges , with most primary fees taking effect Oct. 28. Those fees will escalate further on Nov. 25, before reverting to the initial surcharge on Dec. 30. All demand surcharges conclude on Jan. 19, 2025. The fees will help mitigate impact on its delivery network as volume spikes during the peak holiday shipping season.
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