FedEx Earnings Beat - Revenue Light
December 22, 2022
Fiscal 2023 Cost Reduction Initiatives Accelerated
Fiscal 2023 Capital Spending Forecast Reduced by $400 Million
reported results for the second quarter ended November 30.
The firm had Q2 earnings per share of
$3.18 adjusted with $2.82 expected. On their top line, FedEx had revenue of
$22.8 billion with $23.74 billion expected.
FedEx’s Q2 net income went down to $788
million, down from $1.04 billion a year earlier. Sales were down from $23.5
billion a year earlier. Adjusting for one-time items, FedEx's per share
earnings of $3.18 were less than the $4.83 a share it reported during the
same period of last year.
“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
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.
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:
per diluted share of $12.50 to $13.50 before the MTM retirement plans accounting
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
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.”