FedEx profit tops estimates as costs offset shipments decline

Bloomberg

FedEx Corp reported fiscal second-quarter earnings that beat analysts’ estimates, lifted by price increases and cost cuts that helped make up for a decline in package volume.
Shares of the delivery giant rose after the company announced an additional $1 billion of projected savings in fiscal 2023, bringing the total to about $3.7 billion.
Earnings totalled $3.18 a share excluding some items,
the Memphis, Tennessee-based courier said in a statement. Analysts had predicted $2.80 a share on average. Sales for the quarter ended on November 30 were $22.8 billion, below estimates of $23.7 billion.
FedEx is making “rapid progress on our ongoing transformation while navigating a weaker demand environment,” Chief Executive Officer Raj Subramaniam said in the statement. “Our earnings exceeded our expectations in the second quarter driven by the execution and acceleration of our aggressive cost reduction plans.”
Some analysts were encouraged by the cost cuts and upside beat. Citi analyst Christian Wetherbee, who has a neutral rating on the stock, wrote in a research note to clients that FedEx shares will benefit from the positive earnings, though concerns linked to the broader economy persist.
Keybank Capital’s Todd Fowler, who has a sector weight rating, wrote that FedEx’s valuation may provide support into a possible fiscal 2023 cyclical trough.
Investors had pared their expectations in September after FedEx pulled its annual forecast, posted earnings well below estimates and pledged to cut costs in the face of sagging volume. The decline in shipments was much quicker than FedEx anticipated, and the company also struggled with service issues in Europe, Subramaniam said on a conference call.
For the year, FedEx announced a new target of adjusted earnings of $13 to $14 a share, excluding pension-fund fluctuations and expenses related to the cost-saving measures. Analysts were predicting adjusted profit of $14.14 a share.
For the latest quarter, the company cited weakness in demand at FedEx express, its largest and best-known business.
FedEx is dealing with a post-pandemic hangover. Volume and package prices at the ground unit had swelled at the height of the pandemic when people avoided stores. At the same time, the express unit soared as companies sent goods via FedEx planes because ships were backed up and airlines canceled passenger flights, which also carry cargo.
Volume in the truck-freight division jumped as well, thanks to the supply-chain squeeze that also drove up rates.