FedEx Cuts 2024 Revenue Forecast on Weak Demand
FedEx cut its full-year 2024 revenue forecast as soft demand resulted in fewer-than-expected sales and income in the second quarter, sending the company’s stock down more than 10 percent in early trading on Wednesday.
FedEx now expects a low-single-digit percentage decline in revenue from last year’s $90.2 billion, compared with its prior forecast of roughly flat results.
More from Sourcing Journal
The company upped its full-year guidance for diluted earnings per share, now saying it will come in at a range of $15.35 to $16.85 per diluted share from $15.10 to $16.60 per diluted share.
The Memphis, Tenn.-based courier is currently negotiating a renewal of its air cargo network contract with the U.S. Postal Service (USPS).
Brie Carere, executive vice president, chief customer officer, FedEx, called the negotiations “very collaborative,” but acknowledged the potential of a future without the partnership.
“We’ve also been very clear that it will take quite a significant change in contractual terms and agreement to renew that contract,” said Carere in an earnings call. “We continue to value the partnership. We’re both at the table, and of course, we are honoring our service commitments and with the current volume levels that is a headwind this fiscal year. We’re still negotiating.”
Originally signed in April 2013, the deal enables FedEx Express to facilitate airport-to-airport transportation of USPS Priority Mail Express and Priority Mail within the U.S. The contract is set to expire Sept. 29, 2024.
Along with the contract concerns, FedEx has another potential unionization on its hands. On Wednesday, an unidentified number of mechanics and related employees working at FedEx Express launched an organizing drive to join the Teamsters.
The workers’ campaign to grow their union “organically,” the Teamsters said, with the mechanics reaching out to the union, signing thousands of authorization cards, and taking other actions to move along the organizing process on their own. The drive comes as FedEx continues ongoing contract negotiations with its unionized pilots.
Second-quarter revenue fell 3 percent to $22.2 billion, down from $22.8 billion a year earlier and missing the $22.36 billion expected by analysts polled by FactSet.
For the three-month period ending Nov. 30, FedEx reported net income of $900 million, or $3.55 a share, versus $788 million, or $3.07 a share, a year earlier. Stripping out certain one-time items, adjusted per-share earnings came to $3.99, below the $4.19 forecast by analysts, according to FactSet.
The package delivery company credited its Drive transformation plan for the elevated profit, with president and CEO Raj Subramaniam saying he was confident that FedEx will deliver on its goal to cut costs by $1.8 billion in 2024.
In the second quarter, FedEx cut $200 million in expenses for its surface network, $115 million in its air network and international division, and $100 million in general and administrative expenses.
The surface network cuts were driven by shifting to a single daily courier dispatch, applying dock productivity initiatives, consolidating underutilized sorts, and maximizing the use of rail.
Across all transportation segments, FedEx is still struggling with volume, seeing total package volumes decline 2 percent in the quarter to 5.6 million packages.
Revenue increased 3 percent at FedEx Ground to $8.6 billion, marking the only of the company’s three segments to see a sales boost. Operating income increased 57 percent to $936 million thanks to increased volumes in the business and a 2 percent decline in cost per package.
FedEx Express, the largest of the company’s units by revenue, saw sales dip 6 percent to $10.3 billion. Global freight pounds declined 18 percent year over year to 21.2 million, driven by lower USPS volume as the agency shifting more volume from air to ground.
Total quarterly package revenue at the Express segment, at $8.4 billion, decreased 2 percent annually, and total U.S. package revenue, at $3.8 billion, was off 4 percent. Total international export package revenue, at $3.5 billion, saw a 2 percent annual decline.
Operating income declined 49 percent to $178 million in line with the volume declines.
FedEx Freight was the only part of the business that saw sequential improvements throughout the quarter, with the less-than-truckload (LTL) unit retaining a majority of the volume won from Yellow after the trucking firm filed for bankruptcy.
While revenue in the department declined 4 percent to $2.4 billion, volume pressure moderated and revenue per shipment “inflected positively,” increasing 1 percent to $381.05. The volume declines improved sequentially in the quarter’s three months, going from a 6 percent dip in September to a 4 percent downswing in November.
Although FedEx is still seeing volume contractions, the company is holding onto the 400,000 average daily packages it says it took from UPS during their labor negotiations with the Teamsters, Carer said.
“We are tracking all accounts that we won specifically because of their concerns on the labor negotiations. The vast majority of those had an early termination clause, and to my knowledge, we have not lost a single one of those accounts,” said Carer. “Now, of course, we do trade accounts with UPS, and we have accounted for the trades between the two of us over the last quarter…We looked at their Q3 numbers, we’ve gained share. And also, I think it’s important to note, we gained share here in the United States, but globally, we outperformed the market.”
