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Shares of FedEx Corporation (NYSE: FDX ) rose more than 4% on Wednesday, a day after the company reported mixed results for the second quarter of 2023. While earnings beat expectations, revenue fell. The company faced a challenging demand environment that impacted revenues and profits during the quarter.
mixed results
FedEx reported revenue of $22.8 billion for the second quarter of 2023, which was down 3% from the year-ago period and below market expectations. Adjusted EPS of $3.18 declined 34% year over year but exceeded projections.
Trends
FedEx faced a challenging operating environment during the second quarter with sluggish demand for products and services. FedEx Express was the most affected with revenue down 6% YoY mainly due to volume and yield softness in Europe and Asia. Operating income in the segment fell 64% due to lower global volumes.
At FedEx Ground, revenue growth was 2%, driven by higher yields, partially offset by lower volumes. Operating income increased by 24%, driven by a 13% increase in revenue and cost-cutting actions. At FedEx Freight, revenue increased 8% and operating income increased 32%.
FedEx is trying to cut costs to adjust to weak volumes. The company seeks to save costs of approx. $3.7 billion in FY2023, which is $1 billion higher than the previous projection.
In a quarterly conference call, the company said the majority of its cost reductions are focused on the Express segment, where most of the savings will come from reduced flight frequency. FedEx has reduced eight international routes and 32 US domestic routes and also parked five planes so far this year. This reduced US domestic flight hours by 6% and international flight hours by 7% in the second quarter YoY.
FedEx expects business conditions to remain challenging in the second half of 2023. However, the company expects moderate volume declines in Express and Ground at the end of the third quarter compared to lower levels in the fourth quarter at the start. of a softer volume. Yield growth will also see pressure from changing customer demand. Amid these trends, FedEx plans to continue its cost-cutting efforts to improve performance.
Outlook
For fiscal year 2023, FedEx expects adjusted EPS of $13.00-14.00. This compares to the consensus estimate of $14.08. The company expects EPS to be $12.50-13.50 before MTM retirement plans accounting adjustments.
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