FedEx Corporation (NYSE: FDX) has announced its plans to ground 29 aircraft in the current fiscal year, starting from June 1. The company is taking these measures to protect its profits as demand for shipping services declines.
The shipping sector has been hit hard by the global economic slowdown, and FedEx is feeling the impact. One of the main challenges for FedEx is aligning its costs and capacity with the lower demand.
The decline in e-commerce, in particular, has been significant. The online shopping boom caused by the pandemic has subsided as consumers have returned to physical stores, resumed dining out, and started traveling again.
During a conference call with analysts, FedEx CEO Raj Subramaniam stated that the company’s new cost-cutting initiatives would help improve profits in the current fiscal year, despite ongoing demand challenges, especially in the first half. FedEx’s fiscal year runs until November.
In the previous fiscal year, FedEx took several actions to reduce costs. This included slashing 29,000 jobs, retiring 18 planes, closing offices, and scaling back Sunday deliveries. These efforts were aimed at achieving a $4 billion permanent cost reduction by the end of the 2025 financial year.
Earnings
FedEx’s shares declined by -2.98% during the pre-market trading on Wednesday after the company released its financial results for the fourth quarter ended May 31. The adjusted profit for this quarter was reported at $4.94 per share, down from $6.87 per share in the same period last year.
One of the key factors behind this decrease in profits was the weakness in FedEx’s Express service, which heavily relies on aircraft for fast package delivery. The company experienced softer demand in this area as customers opted for slower and more cost-effective transportation options.
Despite these challenges, FedEx’s executives expressed confidence in improving margins within the Express service business. They believe that strategies will be implemented to address the current weaknesses and boost performance.
Looking ahead to fiscal 2024, FedEx projects a flat to low-single-digit-percent revenue growth compared to the previous year. This indicates a cautious outlook for the company’s financial performance. The projected adjusted earnings, excluding items, for the upcoming year are estimated to be in the range of $16.50 to $18.50 per share.
In addition, the company announced plans to repurchase $2 million worth of its common stock during the new fiscal year. Chief Financial Officer Michael Lenz is set to retire on July 31 but will continue to serve as a senior adviser to the company until December 31.
