FedEx finishes FY 2023 with earnings declines, amid signs of improvements

Fiscal fourth quarter earnings for Memphis-based global freight transportation and logistics services provider FedEx echoed familiar themes from previous quarters, in the form of what the company described as continued demand weakness and cost inflation.

Quarterly revenue—at $21.9 billion—was down 10.3% annually, and adjusted operating income—at $1.8 billion—fell 21%. Adjusted earnings per share came in at $4.94, down 28% annually and topping Wall Street expectations, at $4.85.

While inflation and reduced demand continue to impact earnings, the company said that these factors were partially offset by cost-reduction actions and U.S. domestic package yield improvement.

“The solid close to the fiscal year demonstrates the significant progress Team FedEx has made in advancing our global transformation while adapting to the dynamic demand environment,” said Raj Subramaniam, FedEx Corp. President and Chief Executive Officer, in a statement. “FedEx is becoming a more flexible, efficient and data-driven organization as we significantly lower our cost structure, drive enhanced profitability, and deliver outstanding service for our customers.”

Individual segments

FedEx Express revenue—at $10.4 billion—fell 13% annually, with the company attributing the decline to lower global volumes that were partially offset by decreased expenses and higher U.S. domestic yields. The company noted that it is continuing to implement volume-related and structural cost-reduction actions, which are comprised of further reductions in flight hours and also the early retirement of certain aircraft and related assets in order to mitigate lower demand.

FedEx Ground revenue—at $8.3 billion—was off 2% annually, while the company said operating results improved primarily due to higher revenue per package and cost-reduction actions, which were partially offset by lower package volume, higher infrastructure costs and increased other operating expenses.

Revenue for FedEx Freight, the company’s less-than-truckload unit—at $2.3 billion—were down 18% annually, due to decreased shipments and lower weight per shipment, partially offset by improved revenue quality. The company said that FedEx Freight remains focused on cost discipline, which was supported by a fourth round of furloughs to match staffing with demand and network optimization from the planned permanent closure of 29 facilities announced earlier this year.

Total quarterly package revenue—at $8.421 billion—fell 9.6% annually, and total U.S. package revenue—at $3.943 billion—decreased 8%. Total international export package revenue—at $2.653 billion—was off 17%.

FedEx said it is continuing to make progress on its DRIVE initiatives, a program supporting its Deliver Today, Innovate for Tomorrow strategy, which was rolled out in June 2022, and focused implementing network cost reductions and ultimately enable Network 2.0, the long-term end-to-end trend optimization of its network.

And through Network 2.0, FedEx said it is rolling out optimization plans focused on streamlining pickup and delivery operations across networks in 20 markets. It explained that in some of these markets, contracted service providers will be handling the pickup and delivery of ground and express packages, and in others, pickup and delivery will be handled exclusively by employee couriers.

“Each market is unique and will be optimized based on a number of factors, including volume fluctuations, customer demand, facility footprints, and more,” the company said. “Both the employee courier and the contracted service provider models will continue to play critical roles within the U.S. operations network and for the overall success of the company strategy.”

What’s more, Subramaniam explained on an earnings call yesterday that FedEx is confident it can deliver on its previous goal for about $1.8 billion in cost reduction benefits from DRIVE this fiscal year [2024] and $4 billion of permanent cost reductions in fiscal year 2025.

“As we introduced in April, between now and June of 2024, we will be consolidating our operating companies into one unified organization,” he said. “One FedEx is the next step of this journey to realize our full value potential. It aligns our organization to one corporate structure that will facilitate the execution of our DRIVE transformation and will further enable the work that's underway in Network 2.0.”

Subramaniam said on the call that total revenue in the fourth quarter was down 10% year over year as volumes declined with demand remaining soft across the market.

“With this said, the rate of volume decline in Ground and Express improved sequentially,” he noted. “As expected, yield trends have been pressured in international markets where the supply demand balances have changed. We continue to maintain our focus on revenue quality and are committed to our disciplined pricing approach focused on the long term. While we expect these pressures to persist, we do expect moderation throughout the fiscal year.”

Brie Carere, FedEx Executive Vice President, Chief Customer Officer, said on the call that fourth-quarter operating environment remained pressured, with year-over-year volume declines and sequential moderation in yields across all transportation segments. 

“We remain focused on revenue quality and creating meaningful differentiation while managing through these dynamics,” she said. “Although the pricing environment is moderating, our pricing discipline remains strong.”

Full-year fiscal 2023 revenue—at $90.2 billion—fell 3.5% annually, and net income—at $3.84 billion—was off 30.2%.

Canadian changes: FedEx said that its FedEx Ground operations and personnel in Canada will be transitioning to Federal Express Canada, effective April 2024. The company stated that this new streamlined structure will enable it to more efficiently address future growth opportunities in the Canadian market.

“Canada is a unique market, and we're taking a different approach there than the market-to-market approach we're taking in the U.S.,” said Subramaniam. “The Canadian population is heavily concentrated in a few key geographies, and the volume is split roughly 50-50 between Express and Ground. So, we made the decision to consolidate everything under Express. And it's the right time to take these steps because we will begin in April 2024 and complete by September of 2024. And it's very important that you understand that this is unique to Canada because we're going to take a market-by-market approach in the United States, and we'll have a hybrid in the United States between couriers and package handlers. But it's a very important step for us in Canada. It reduces our costs by about $100 million and, importantly, improves our portfolio and service differentiation.”