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Sep 22, 2022

FedEx to cut costs, hike rates in battle against flagging demand

If the Fed is aggressive, markets will go the way of FedEx: Michele Schneider

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FedEx Corp. is cutting flights, deferring projects and closing offices as it seeks as much as US$2.7 billion in savings to tackle challenges including slowing demand and a tight labor market.

The courier is also planning to raise shipping rates in an effort to regain its footing after shocking Wall Street last week by withdrawing its annual forecast and posting preliminary results that fell well short of expectations.

The steps outlined Thursday, which came along with its first-quarter earnings report, reversed a decline in the stock, which closed the session up less than 1 per cent. The shares are still down about 40 per cent this year.

“We’re moving with speed and agility to navigate a difficult operating environment, pulling cost, commercial and capacity levers to adjust to the impacts of reduced demand,” Chief Executive Officer Raj Subramaniam said in a regulatory filing. 

The measures underscore the magnitude of the challenges confronting FedEx -- and the lengths the company plans to go to deal with them. The stock last week suffered its worst one-day decline in more than 40 years after FedEx flagged worsening macroeconomic conditions, citing service difficulties in Europe and weakness in Asia.

Read more: FedEx Plummets as Shock Over Forecast Unwinds Two Years of Gains

The cost-cutting steps saved US$300 million in the fiscal first quarter and FedEx sees US$700 million of benefit in the current period. FedEx Express will account for the largest portion of planned savings, including by reducing flight frequencies and temporarily parking some of its huge fleet of cargo jets. The company will also close some package sorting facilities and corporate offices.

FedEx also plans to increase delivery rates across its express, ground and home delivery operations by an average of 6.9 per cent in January.

The plans were revealed in a filing that was released at 2:29 p.m. Eastern time, well ahead of the expected postmarket report. A spokesperson confirmed that the early release was not intentional, attributing it to a technology issue.

Operating income at FedEx Express in the past quarter plummeted with global package and freight volume declining 11 per cent, as cost-cutting failed to keep pace with the downturn in demand. The company’s ground-delivery unit saw operating profits gain 3 per cent, aided by higher fuel surcharges and an uptick in home deliveries though they were partially offset by higher operating costs.

Adjusted earnings during the quarter were US$3.44 a share, matching the preliminary figure from last week. Revenue was US$23.2 billion in the period ended Aug. 31.