FedEx Corp. Reports Second Quarter Results
Fiscal 2023 Cost Reduction Initiatives Accelerated
Fiscal 2023 Capital Spending Forecast Reduced by $400 Million
MEMPHIS, Tenn. — (Trailer Technician) –FedEx Corp. (NYSE: FDX) today reported the following consolidated results for the second quarter ended November 30 (adjusted measures exclude the items listed below for the applicable fiscal year):
This year’s and last year’s quarterly consolidated results have been adjusted for:
“The FedEx team moved with urgency to make rapid progress on our ongoing transformation while navigating a weaker demand environment,” said Raj Subramaniam, FedEx Corp. president and chief executive officer. “Our earnings exceeded our expectations in the second quarter driven by the execution and acceleration of our aggressive cost reduction plans. At the same time, we continue to focus on delivering excellent service for our customers.”
Second quarter results were constrained by continued demand weakness, particularly at FedEx Express.
FedEx Express operating income declined 64% year-over-year due to lower global volumes, partially offset by an 8% package yield increase. FedEx Express implemented previously planned and incremental cost reduction actions during the quarter to mitigate the impact of volume declines, including structural air network changes and the temporary parking of aircraft.
FedEx Ground operating income increased 24% year-over-year, due primarily to a 13% yield increase and cost reduction actions. These factors were partially offset by increased purchased transportation rates, lower package volume, and higher other operating expenses.
FedEx Freight operating income increased 32% year-over-year, driven by an 18% yield increase. This was partially offset by higher salaries and employee benefits and decreased shipments.
Second quarter fiscal 2022 net income included a pre-tax, noncash MTM net loss of $260 million ($195 million, net of tax, or $0.73 per diluted share) related to the termination of a TNT Express European pension plan and a curtailment charge related to the U.S. FedEx Freight pension plan.
The previously announced accelerated share repurchase program (ASR) was initiated during the quarter, and 7.9 million shares were delivered under the ASR agreement. The remaining ASR shares are expected to be delivered during December. The decrease in outstanding shares benefited second quarter results by $0.06 per diluted share. Cash on-hand as of November 30, 2022 was $4.6 billion.
Fiscal 2023 Cost Reduction Initiatives
FedEx is prioritizing actions to quickly reduce costs in order to align fiscal 2023 costs with weaker-than-expected volume. The company has identified an incremental $1 billion in cost savings beyond its September forecast, and now expects to generate total fiscal 2023 cost savings of approximately $3.7 billion relative to its initial fiscal 2023 business plan.
DRIVE: Global Transformation Program
FedEx is advancing its global transformation through DRIVE, a comprehensive program to improve the company’s long-term profitability and achieve its financial targets. Through DRIVE, the company expects to achieve more than $4 billion in annualized structural cost reductions by fiscal 2025. FedEx plans to host a DRIVE update call during the first half of calendar 2023 to provide additional details on the company’s ongoing transformation.
Outlook
FedEx is unable to forecast the fiscal 2023 mark-to-market (MTM) retirement plans accounting adjustments. As a result, FedEx is unable to provide a fiscal 2023 earnings per share or effective tax rate (ETR) outlook on a GAAP basis and is relying on the exemption provided by Item 10(e)(1)(i)(B) of Regulation S-K. It is reasonably possible that the fiscal 2023 MTM retirement plans accounting adjustments could have a material effect on fiscal 2023 consolidated financial results and ETR.
FedEx expects for the fiscal year:
- Earnings per diluted share of $12.50 to $13.50 before the MTM retirement plans accounting adjustments;
- Earnings per diluted share of $13.00 to $14.00 before the MTM retirement plans accounting adjustments and excluding estimated costs related to business optimization initiatives and business realignment activities;
- ETR of 25% to 26% prior to the MTM retirement plans accounting adjustments; and
- Capital spending of $5.9 billion, down from the prior forecast of $6.3 billion.
These forecasts assume the company’s current economic forecast and fuel price expectations, no additional COVID-19-related business restrictions, and no additional adverse geopolitical developments. FedEx’s earnings per share forecast is based on current law and related regulations and guidance.
“Our teams have an unwavering focus on rapidly implementing cost savings to improve profitability,” said Michael C. Lenz, FedEx Corp. executive vice president and chief financial officer. “As we look to the second half of our fiscal year, we are accelerating our progress on cost actions, helping to offset continued global volume softness.”
Corporate Overview
FedEx Corp. (NYSE: FDX) provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenue of $94 billion, the company offers integrated business solutions through operating companies competing collectively, operating collaboratively and innovating digitally under the respected FedEx brand. Consistently ranked among the world’s most admired and trusted employers, FedEx inspires its more than 550,000 employees to remain focused on safety, the highest ethical and professional standards and the needs of their customers and communities. FedEx is committed to connecting people and possibilities around the world responsibly and resourcefully, with a goal to achieve carbon-neutral operations by 2040. To learn more, please visit fedex.com/about.
Additional information and operating data are contained in the company’s annual report, Form 10-K, Form 10-Qs, Form 8-Ks and Statistical Books. These materials, as well as a webcast of the earnings release conference call to be held at 5:30 p.m. EST on December 20, are available on the company’s website at investors.fedex.com. A replay of the conference call webcast will be posted on our website following the call.
The Investor Relations page of our website, investors.fedex.com, contains a significant amount of information about FedEx, including our Securities and Exchange Commission (SEC) filings and financial and other information for investors. The information that we post on our Investor Relations website could be deemed to be material information. We encourage investors, the media and others interested in the company to visit this website from time to time, as information is updated and new information is posted.
Certain statements in this press release may be considered forward-looking statements, such as statements regarding expected cost savings, future financial targets, business strategies, management’s views with respect to future events and financial performance, and the assumptions underlying such expected cost savings, targets, strategies, and statements. Forward-looking statements include those preceded by, followed by or that include the words “will,” “may,” “could,” “would,” “should,” “believes,” “expects,” “forecasts,” “anticipates,” “plans,” “estimates,” “targets,” “projects,” “intends” or similar expressions. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from historical experience or from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, economic conditions in the global markets in which we operate; our ability to successfully implement our business strategy, effectively respond to changes in market dynamics, and achieve the anticipated benefits and associated cost savings of such strategies and actions, including our fiscal 2023 cost reduction initiatives and the global transformation program in support of our fiscal 2025 financial performance goals; our ability to achieve our fiscal 2025 financial performance goals; damage to our reputation or loss of brand equity; changes in the business or financial soundness of the U.S. Postal Service, including strategic changes to its operations to reduce its reliance on the air network of FedEx Express; our ability to meet our labor and purchased transportation needs while controlling related costs; a significant data breach or other disruption to our technology infrastructure; the continuing effect of the COVID-19 pandemic; anti-trade measures and additional changes in international trade policies and relations; the effect of any international conflicts or terrorist activities, including as a result of the current conflict between Russia and Ukraine; changes in fuel prices or currency exchange rates, including significant increases in fuel prices as a result of the ongoing conflict between Russia and Ukraine and other geopolitical and regulatory developments; our ability to match capacity to shifting volume levels; the effect of intense competition; an increase in self-insurance accruals and expenses; failure to receive or collect expected insurance coverage; our ability to effectively operate, integrate, leverage, and grow acquired businesses and realize the anticipated benefits of acquisitions and other strategic transactions; the future rate of e-commerce growth and our ability to successfully expand our e-commerce services portfolio; the timeline for recovery of passenger airline cargo capacity; evolving or new U.S. domestic or international laws and government regulations, policies, and actions; future guidance, regulations, interpretations, challenges, or judicial decisions related to our tax positions; legal challenges or changes related to service providers engaged by FedEx Ground and the drivers providing services on their behalf; our ability to quickly and effectively restore operations following adverse weather or a localized disaster or disturbance in a key geography; any liability resulting from and the costs of defending against litigation; our ability to achieve our goal of carbon-neutral operations by 2040; and other factors which can be found in FedEx Corp.’s and its subsidiaries’ press releases and FedEx Corp.’s filings with the SEC. Any forward-looking statement speaks only as of the date on which it is made. We do not undertake or assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
The financial section of this release is provided on the company’s website at investors.fedex.com