FedEx Quarterly Sales Fall 10% as Shipping Struggles Continue

FedEx on Tuesday posted its third-straight drop in quarterly revenue amid weaker demand after a pandemic-fueled boom in business.

The company is in the early stages of combining its Express and Ground delivery networks into a single business to help cut costs. It has trimmed flight hours and parked aircraft. It also has sought to charge higher shipping rates to offset a decline in the number of packages shipped.

FedEx executives aren't expecting a strong turnaround in business soon. Inflation, higher interest rates, and a slowdown in global trade are likely to hinder parcel volumes and revenue growth, Chief Executive Raj Subramaniam told analysts on a conference call.

With the pandemic in the rearview mirror, consumers have been spending more on services rather than on goods. Subramaniam said some of that spending might return to e-commerce over the next year.

FedEx also said that Chief Financial Officer Mike Lenz will retire next month and that an external search is under way for his successor.

The company plans to cut around $4 billion in costs over the next 2 years by combining its Express and Ground networks in Canada, with Ground operations and staff transitioning to Express. This change will begin in April 2024 and is expected to save more than $100 million.

There are around 4,700 FedEx Ground employees and 12,000 Express employees in Canada, and FedEx said it would work with affected staff to identify new positions in FedEx Express Canada.

The combination between its U.S. Express and Ground networks will take several years. It has already started the streamlining efforts in about 20 markets including Hawaii, Alaska and Minneapolis.

In some U.S. markets, contractors will be handling the pickup and delivery of Ground and Express packages and in others, these operations will be handled exclusively by employee couriers. FedEx has more than 275,000 Express employees and more than 215,000 Ground employees in the U.S.

FedEx didn't see any material benefit as a result of contract negotiations between United Parcel Service, and unionized employees in the quarter ended May 31, said Brie Carere, chief customer officer at FedEx.

Industry analysts had expected that some customers might divert volume from UPS to other carriers including FedEx to mitigate the risk of a work stoppage.

In the 4th quarter, FedEx reported a profit of $1.54 billion, or $6.05 a share, compared with a profit of $558 million, or $2.13 a share, in the same period a year earlier. Sales fell 10% to $21.93 billion in the quarter, falling short of the $22.55 billion expected by analysts.

For the current fiscal year, FedEx projected low-single-digit revenue growth and per-share earnings between $16.50 and $18.50 on an adjusted basis.

Analysts polled by FactSet expected FedEx to give guidance of $18.33 a share.

Shares were down more than 3% in after-hours trading Tuesday. The stock is up 31% this year while the S&P 500 has gained 15% over the same period.

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