Even before the effects of the latest round of bank collapses, FedEx was sounding a note of economic pessimism. The Memphis express giant issued its third quarter results last week and they showed a modest retreat in profits and sales. Revenue for the quarter fell by US$1.4bn to US$22.2bn as compared to Q3 2022 and operating income fell 12% year-on-year.
The core Express business saw revenue edge-down by 8% but operating profits fall by 77% year-on-year. This fairly awful result was ascribed by FedEx to lower demand although the company was still able to increase revenue-per-package by 3%. FedEx said that it was continuing to “implement volume-related and structural cost-reduction actions to mitigate the negative effect of ongoing demand weakness.”
It is noticeable that the largest falls in volume were in the US, with ‘US Domestic’ package volume down 14% but ‘International’ volumes down 9%. Volumes in other markets were down just 3%. It might be guessed that this reflects lower e-retail demand. Business at FedEx Ground was less badly hit with revenue down 2% year-on-year and operating profits up 32%. Good cost-control played a strong role here.
FedEx Freight also saw a fall in revenue of 3% year-on-year but operational income was up by 15%. This was driven by an 11% increase in revenue per shipment but also exceptional items such as the sale of property, reflecting FedEx’s cost reduction drive. This was despite volumes carried drifting lower.
Although FedEx did not forecast profits for the Group due to uncertainty over pension liabilities, it did hit a more optimistic note over near-term return on assets. However much of this is driven by continued cost control and productivity. For example, FedEx is accelerating the modernisation of its fleet, retiring its MD-11 aircraft to be replaced by new Boeing 767 and 777.
Generally, these results were welcomed by the financial sector as being better than they had expected. However, FedEx still appears not to be growing, with much of the improvement in profits and moderation in losses due to aggressive cost control.
Author: Thomas Cullen
Source: Ti Insights
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