FedEx Corp. said it cut 29,000 U.S. jobs over the past year and issued a 2024 profit outlook that missed Wall Street’s expectations. The delivery carrier continues to trim costs in the face of waning package delivery demand.
The company is slashing expenses as the industry copes with a decline in package volume following two years of surging demand fueled by online shopping.
FedEx net income grew to $3.97 billion for its fiscal 2023, which ended May 31. That’s up from $3.83 billion in the prior year.
The outlook “shows some cracks,” Ravi Shanker, an analyst with Morgan Stanley, said in a research note. “It may not necessarily get easier from here. Macro is likely to remain choppy in the near term.”
The FedEx Express unit has been hit particularly hard by the drop off in demand. During the pandemic, the business was swamped with packages as port congestion forced some shippers to send their wares by air freight. Maritime shipping has returned to normal and commercial airlines are ramping up cargo operations, forcing FedEx to reduce flights and park older planes.
Cost cuts
FedEx is looking to avoid the missteps that forced the company to withdraw last year’s earnings forecast. CEO Raj Subramaniam, who implemented a $4 billion cost-savings plan after assuming the top post in mid-2022, told analysts on a June 20 conference call that the 29,000 job cuts last fiscal year exceeded its plan. The Memphis-based company aims to save another $2 billion by integrating its two distinct delivery networks.
Profitability will be a key focus in the coming year as FedEx navigates “a challenging demand environment,” chief financial officer Michael Lenz said in a statement detailing the outlook and fiscal fourth-quarter results. Lenz plans to retire effective July 31, the company said in a separate announcement on June 20.
FedEx has trailed UPS on profit margins even though its larger rival has a unionized workforce and pays its drivers more than twice what their counterparts at FedEx’s ground network make.
With UPS’s union workers in contract talks and at risk of going on strike as soon as Aug. 1, FedEx has a chance to win some business from its chief competitor. FedEx Ground has already seen some shippers shift volume away from UPS on concern about a potential strike.
Brie Carere, FedEx’s chief customer officer, said on the call that while there was no material benefit during the quarter, the prospect of a UPS strike “has opened a lot of doors.”
“We’re having a lot of great conversations with legacy UPS customers,” she said on the earnings call. “We feel really good about the sales pipeline.”
FedEx to merge Ground into Express network in Canada
The company plans to tuck the operations of its Ground network into the Express unit in Canada starting in April.
The move is part of the courier’s plan to combine its two distinct networks to gain efficiencies and to avoid the redundancy of drivers from both Ground and Express serving the same customers. The combination is expected to be completed before the peak holiday season next year.
“The new streamlined structure will position the company to more efficiently address future growth opportunities in the Canadian market,” FedEx said in an emailed statement. “Each market is unique and will be optimized based on a number of factors.”
The Express network owns vehicles and has drivers on payroll whereas Ground uses about 6,000 contractors to deliver packages. In Canada, Express employs about 12,000 people and the Ground unit has about 4,700 employees, according to a spokeswoman.
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