FedEx experienced another challenging quarter, with lower volumes impacting the top and bottom line, especially in the Express segment, and the company announced further moves to rein in costs and trim operations, including grounding more flights and dialing back capital spending.
In fiscal 2023, FedEx said capital spending is being reduced by an additional $400 million to $5.9 billion, on top of $500 million in cuts already announced.
To address the volume decline and gain efficiency, the company has set a target of $4 billion in cost savings by fiscal 2025 across 14 domains within the company, each with an executive sponsor. That is $1 billion more than the company planned for coming into fiscal 2022. Of the $4 billion, $1.4 billion will come from Express, $1.1 billion from Ground and $1.5 billion from shared services.
FedEx is expecting volume declines at Express and Ground to begin moderating by the end of the third quarter.
Brie Carere, EVP and Chief Marketing and Communications Officer for FedEx, told analysts on the earnings call that the operating environment in Q2 was “challenging,” as expected.
“The trends we saw toward the end of the first quarter persisted through November. As a result, we experienced lower demand for FedEx products and services,” Carere said. “But we acted with urgency to adjust our network while continuing to deliver for our customers.”
Revenue at FedEx Express was down 6%, mainly due to volume and yield softness in Europe and Asia, the company said. At FedEx Ground, revenue was up 2% even though volume declined again, due to a higher yield from fuel surcharges, base rate increases and an improved product mix. Spending increased on purchased transportation, or hiring outside providers to fill in service gaps.
Overall, revenue was down 3% to $22.8 billion, and adjusted net income declined 24% to $815 million. FedEx Freight was once again a bright spot, with revenue up 8% from Q2 of 2021.
“While navigating the current environment, FedEx Freight continues to innovate,” Carere said. “We’re expanding dimensional capture and piloting dimensional weight-based pricing. We believe that simplified pricing is the future of the LTL industry, and we’re leading in this transformation.”
Adjusted operating income was down 65% at FedEx Express, due to cost reduction efforts not keeping pace with declining volume. At Ground, operating margin increased by 24%, due to a combination of higher fuel surcharges, product mix and pricing initiatives with cost-cutting, executives said.
FedEx management did not speak on the call to the company’s dealings with ThinkISP, a group of Ground contractors that was announced last month just as The Association of Logistics Professionals (TALP) was disintegrating. ThinkISP calls itself a think tank and analytics unit that will share anonymized ISP route data with FedEx Ground in an effort to improve network efficiencies.