FedEx announced preliminary results before the official earnings call on Friday, September 23rd. FedEx’s fiscal year starts on June 1st, so the latest earnings report was for the 1st quarter of fiscal 2023.
The carrier fell short of its forecast in a few areas but especially in International shipments in Asia and in the Domestic Ground network. The Memphis based carrier was $500 million behind its International forecast and $300 million behind its Ground forecast.
The total revenue for the quarter came in at $23.2 billion which is 6% higher than last year’s number but the operating margin of $1.23 billion is 18% lower than the previous year. FedEx stated that the main reason for the shortfall was due to global volume softness along with service issues in Europe. The softness was very rapid in the last few weeks of the quarter, and this large macro decline has not yet shown its head in other industries.
FedEx Express operating income fell 69% and the revenue from this sector accounts for 48% of all revenue. The operating income for the Ground network increased by 3% and this division is just over 35% of all revenue. The Freight side of the house increased by 67% on $2.7 billion in revenue or 11.7% of total revenue. The loss in operating income is even more concerning since revenue from fuel increased 81% YOY to $1.8 billion.
The Express daily average package volume was down by 11% to 5.5 million packages, the same statistic for Ground fell 3% at just over 9 million packages. Ground Economy service declined by 37%, while FedEx Home Delivery did increase by 4%.
FedEx is taking action to reduce costs and expects to cut between $2.2 to $2.7 billion in costs in 2023. The breakdown of their cost saving measures consists of:
- $1.5 to $1.7 billion at FedEx Express, reducing flight frequencies and parking aircraft.
- $350 to $500 million at FedEx Ground, closing select sort operations, suspending certain Sunday operations, and other linehaul expense actions.
- $350 to $500 million across shared and allocated overhead expenses, including reducing vendor utilization, deferring certain projects, and closing certain FedEx Office and corporate office locations.
FedEx also announced a 6.9% GRI which is the largest in its history. This follows a 5.9% GRI last year and a 4.9% GRI in the previous eight years. The company stated that inflation was the reason for the higher GRI. FedEx also recently announced its Peak Surcharges.
All eyes are now on the UPS earnings call on October 25th.