FedEx Cutting Costs and Increasing Rates in 2023

fedex fleet leasing
Mark Milbury

FedEx Corp top executives reported last week that their first quarter results did in fact miss their forecasts, something they blamed on the wavering economy.

Their overall net income in the first 2023 fiscal quarter was down more than $1.1 billion in the same period a year ago. Although revenues climbed, the company’s operating margin dropped to 5.1%, 1.3 points lower than a year ago.

As a result, leadership plans to raise freight rates by nearly 7%
at the start of the year.

President and CEO Raj Subramaniam referred to the continuance of  “global volume softness” as the reason his team withdrew their projections for the coming year. While, CFO Mike Lenz weighed in by saying he believes “step change in demand” will endure

“The basic underlying planning assumption that we are using is that the demand levels that we experienced in late August will continue through rest of the year,” Lenz said. “I don’t have a crystal ball about contagion [from Asia and Europe, where activity fell off more] but rest assured we are to continue to be focused on the things we can control.”

In order to mitigate the downward turn as of late, Lenz went on to say they plan to significantly decrease costs by nearly $3 billion with FedEx Express aviation unit taking more than half of the cuts while ground facilities will be canceled or deferred. Lenz said the cuts are focused on “flexing in a changed environment with a view to building back differently in the future.”

However, most analysts balked at what top executives at FedEx were selling noting the TNT Express disaster, the lack of past cost cutting plans to be sustainable and the fact peers of FedEx were not issuing the same challenges with demand.

Related Posts