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Shares of FedEx Corporation share price in Euro. The stock has gained 26% year-to-date. The company faced a challenging environment in the third quarter of 2023 which affected its results. They expect this trend to continue in the coming quarters and make cost reductions a key part of their strategy to mitigate the impact of the headwinds they face.
Quarterly performance
In Q3 2023, FedEx’s total revenue declined 6% year over year to $22.2 billion, due to double-digit volume declines across all segments. Volume softness during the quarter was partially offset by higher yields and cost-cutting actions. Adjusted EPS fell 26% to $3.41 while operating margin fell to 4.7% from 5.6% last year.
cost saving efforts
FedEx faced a challenging demand environment in the third quarter along with headwinds caused by bad weather in the US. The company continues to adopt cost-cutting strategies to reduce pressure on its business. These efforts supported margin expansion in the Ground and Freight segments but could not offset the pressure in Express.
In the Ground section, the management of staffing levels and related costs resulted in a reduction in salaries, allowances and purchased transport costs. Overall, the company was able to reduce these costs by 8% compared to last year. Total operating expenses for this segment decreased by 4% in Q3. Despite volume declining 11%, operating income grew 32% YoY and operating margin increased 240 basis points to 9.7%.
At Freight, companies temporarily park and sell equipment to right-size their fleets and reduce future maintenance costs. It also adjusts staffing levels to match volume. The Transportation segment saw total Opex decrease by 6% during the quarter while operating income increased by 15% and operating margin increased by 270 basis points.
In its quarterly conference call, FedEx stated that its cost base for the Express segment is limited in the short term, and therefore it is taking extra steps to address its fixed cost structure. In Q3, the company reduced flight hours by 8% and payroll and benefits costs by 4%. Also parked are nine additional aircraft. This, coupled with certain other actions, helped reduce 45% of the total revenue decline on an adjusted basis.
FedEx achieved $1.2 billion in total year-over-year cost savings during Q3 2023 and remains on track to generate $1 billion in permanent savings in FY2023.
Outlook
In the fourth quarter of 2023, FedEx expects market conditions to have a negative impact on revenue and operating profit. The Company plans to continue its cost reduction efforts and also identify opportunities to reduce costs in order to mitigate the effect of volume declines on operating results. For the full year 2023, FedEx expects adjusted EPS of $14.60-15.20.
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