FedEx may have announced strong results for the fourth quarter which improved those for the full year but the Memphis giant has performed a marked change of direction.
The most recent numbers show revenue was up $9.5bn to $93.5 billion year-on-year for the full year whilst operating income was up 6.6% to $6.25 billion. Profit margins fell from 7% in the full year 2021 to 6.7% in FY2022. The fall in profitability is due in large part to the falling away of pandemic-driven e-retail volumes. In addition, air freight traffic in and out of China has fallen significantly. That said, the fourth quarter of FY2022 saw underlying margins hardening by 5 basis points and net income up 32% so things appear to be on an upward trajectory again. A key part of this is a continuing focus on cost control and productivity.
However, with Fred Smith’s retirement from the role of CEO, FedEx has shifted away markedly from a focus on investment for growth in market share and towards prioritising returns on capital. Raj Subramaniam, the new CEO, asserted in the latest results that as FedEx moves “forward, our focus will be on revenue quality and lowering our cost to serve”. It seems that the what he calls “foundational investments” will be as much about controlling costs and increasing profits margins as delivering revenue growth, or what he calls a “value proposition”. That said, capital investment is still over $6bn a year with FedEx continuing to expand its fleet of aircraft.
Raj Subramaniam has already stated that the company’s dividend will rise by 53% under pressure from major shareholders who have won new seats on the board of directors. As the market changes and the pandemic boom gives way to a possible recession in both the US and elsewhere FedEx is shifting to exploit new conditions, with loser labour conditions and lower demand in previously buoyant areas such as road freight.
FedEx, therefore, seems to be shifting to a more cautious commercial stance, no longer looking to manage the threat of Amazon but looking to deliver on the priorities of its shareholders.
Source: Transport Intelligence, 28th June 2022
Author: Thomas Cullen
