Key Takeaways from FedEx’s (FDX) Q4 2023 earnings report

FedEx Corporation (NYSE: FDX) this week disappointed its stakeholders by reporting lower earnings and revenues for the fourth quarter. The management also issued cautious guidance, reflecting subdued demand amid weak consumer spending and economic uncertainties. The cargo giant is undergoing a major transformation through strategic initiatives including business combination and optimization of the cost structure.   

The company’s stock suffered after it reported fourth-quarter earnings this week, adding to the weakness experienced ahead of the announcement. FDX is expected to regain the lost strength in the long run as the ongoing reorganization and growth initiatives translate into profitability.

Cost Reduction

Currently, the company is incorporating the latest technologies like artificial intelligence into operations, building on its data-driven strategy. In the long term, better cost efficiency and improvements in the supply chain would drive margin growth. The management expects around $1.8 billion in cost reduction benefits this fiscal year and $4 billion of permanent cost reductions in fiscal 2025. Earlier, FedEx had laid off hundreds of employees in a phased manner as part of the organizational restructuring. In the near term, however, the business is likely to face both secular and cyclical challenges, with expenses still staying elevated.

Weak Q4

In the final three months of fiscal 2023, net profit per share, excluding special items, dropped to $4.94 from $6.87 in the prior-year period. But the bottom line exceeded the market’s estimates, marking the fourth consecutive beat. On a reported basis, however, earnings climbed to $1.54 billion or $6.05 per share in Q4 from $558 million or $2.13 per share in the same period of 2022. Revenues dropped 10% year-over-year to $21.9 billion in the May quarter — the main operating segments of Express, Ground, and Frights contracted reflecting the continued weakness in shipments. The latest number came in above estimates.  

“In a demand environment that remains consistent with what we are currently experiencing, we anticipate flattish revenue for the full year and full-year adjusted earnings per share toward the low end of the range. Should macroeconomic conditions support an improving demand environment in the back half of the year, we expect to see modest volume improvement for the year. In this scenario, we expect revenue to be up low single-digit percentage for the full year,” said FedEx’s CFO Michael Lenz.

Updates

FedEx this week announced that Lenz would retire as executive vice president and chief financial officer effective July 31, 2023. He will serve as a senior advisor until the end of the year. The company also revealed that as part of the reorganization, all FedEx Ground operations and personnel in Canada will transition to Federal Express Canada starting in April 2024. The management’s plan is to combine the Express, Ground, and Services businesses, as well as other operating companies into a unified company called Federal Express Corporation. The transition would be carried out in a phased manner and is expected to be implemented in June 2024.

Shares of FedEx opened lower on Wednesday, reflecting the market’s concerns over the weak Q4 results and unimpressive guidance. The stock mostly traded around $225 during the session.