Sept 22 (Reuters) - FedEx Corp on Thursday outlined cost cuts of up to $2.7 billion from parking planes, suspending some Sunday deliveries and shuttering corporate offices after falling demand hammered first-quarter profits.
The company reported that earnings per share fell 21.3% for the quarter ended Aug. 31, in line with the warning it delivered last week. It blamed a rapidly deteriorating global economy and the CFO late said he expects the weak trends to persist across most regions for the rest of the current fiscal year.
Analysts and investors were skeptical - in large part because revenue increased 5.5%. FedEx executives faced pointed questions on a call with analysts.
FedEx committed to repurchasing $1.5 billion of its common stock this fiscal year, including $1 billion in the current quarter, even as the company confirmed investors' and analysts' suspicion that it did not cut costs fast enough to offset the hit to demand.
"The impact of cost actions lagged volume declines and operating expenses remained high relative to demand," FedEx said in a release detailing its plans to cut costs by $2.2 billion to $2.7 billion in fiscal 2023.
"We have taken swift actions to address what's within our control. Getting cost out rapidly is my priority," said Chief Executive Raj Subramaniam, who was promoted lead the company in June. "We want to get out ahead of this," he said. FedEx said it booked $300 million in first-quarter savings and plans to slash expenses by $700 million in the current second quarter, largely by reducing the frequency of FedEx Express flights after a sharp downturn in Asia where it gained market share.
The company said it also would trim variable incentive compensation meant to motivate and retain workers, close certain package sorting centers, and delay some projects.
On the revenue side, FedEx announced plans to raise average rates by 6.9% starting on Jan. 2.
"I am confident the cost actions we're implementing with urgency will enhance efficiency and drive improved profitability in support of our long-term financial targets," FedEx Chief Financial Officer Michael Lenz said.
Still, Lenz said the company expects weak trends "will persists across our major geographies" and will be "driving our cost takeout initiative for the fiscal year."
News that the company had plans for reducing excess capacity sent shares up 0.8% to close at $154.54. Earlier in the session they touched a 52-week low of $150.36.
Last week, the Memphis-Tennessee-based company said adjusted earnings per share for the quarter ended Aug 31 fell to $3.44 from $4.37 a year earlier, even though revenue rose to $23.2 billion from $22 billion. It also pulled its full-year forecast, blaming macroeconomic weakness in Asia, service challenges in Europe and soft revenue in its U.S. Ground delivery unit. It reiterated those results in a regulatory filing that landed hours earlier than expected due to a technical issue.
"They sound a lot more confident today that they've got a plan in place. They're able to quantify the plan," said David Katz, chief investment officer at Matrix Asset Advisors in White Plains, New York, which holds about 58,000 FedEx shares.
"They're still not giving guidance for the year. However, they definitely are giving a lot more detail in terms of the plan," Katz said.
With the share repurchase announcement, FedEx threw a bone to frustrated investors, who have been waiting for a turnaround at the company where profits have lagged those of rival United Parcel Service.
"If the wheels were truly falling off or they did not have confidence that their plan was going to work, they might suspend the share buy back," investor Katz said.
"They've got a lot to overcome, but at least it's a start," said Gary Bradshaw, a portfolio manager with Hodges Capital Management in Dallas, which owns FedEx shares.
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