FedEx slides on skepticism over new CEO’s cost-cutting plan

Bloomberg

FedEx Corp. declined after the new CEO’s plan to cut costs and raise shipping rates fell flat with Wall Street, leaving investors concerned about deep challenges including slowing demand and elevated expenses.
The courier said it will cut flights, defer projects and close offices as it seeks as much as $2.7 billion in savings this fiscal year. The steps, outlined late Thursday along with FedEx’s first-quarter earnings report, were in line with preliminary disclosures last week about how the company planned to respond to deteriorating business conditions.
After briefly turning positive following the latest announcement, FedEx shares retreated, particularly after Chief Executive Officer Raj Subramaniam’s conference call with analysts. The stock fell 3.6% at 9:31 a.m. Friday in New York, deepening a slide that has wiped out about a quarter of FedEx’s market value since last week.
“We don’t think management was successful in convincing investors that it has a credible plan it can execute on,” Christian Wetherbee, an analyst with Citigroup, said in a note. Financial results this year could be worse than expected, “particularly as management does not expect an improvement in macro dynamics.”
The measures FedEx is taking underscore the magnitude of the challenges confronting the company — and the lengths it plans to go to deal with them. The stock last week suffered its worst one-day decline in more than 40 years after FedEx flagged worsening economic conditions, citing service difficulties in Europe and weakness in Asia.
“We’re moving with speed and agility to navigate a difficult operating environment, pulling cost, commercial and capacity levers to adjust to the impacts of reduced demand,” Subramaniam, who assumed the CEO post in June, said in a regulatory filing.
The cost-cutting steps saved $300 million in the fiscal first quarter and FedEx sees $700 million of benefit in the current period.