© Reuters. FILE PHOTO: FedEx signage is seen through a fence at a FedEx regional hub at Los Angeles International Airport (LAX) in Los Angeles, California, U.S., September 16, 2022. REUTERS/Bing Guan
By Lisa Baertlein and Priyamvada C
(Reuters) -FedEx Corp on Tuesday vowed to accelerate “aggressive cost reduction plans” by slashing an additional $1 billion in costs as it races to get ahead of falling demand for its delivery services.
Shares rose 3.7% to $170.37 in extended trading after Memphis, Tennessee-based FedEx (NYSE:) also reported a bigger fiscal second-quarter profit than Wall street expected.
It now plans to take out $3.7 billion in costs this year by parking planes, closing offices, stopping rural Sunday delivery and furloughing workers in its freight division.
“They seem to have really grabbed the bull by its horns. They are taking action here to really reduce costs, with a forecast of weaker-than-expected volumes. It’s smart,” said Tim Ghriskey, senior portfolio strategist with Ingalls & Snyder.
The New York City-based investment management firm does not currently own shares in FedEx, but Ghriskey follows the company closely.
FedEx Chief Executive Raj Subramaniam said the company was still “navigating a weaker demand environment” and credited cost cutting for the stronger-than-expected profit for the quarter ended Nov. 30.
The global delivery company t angered investors and analysts in September when it yanked its forecast, triggering the biggest one-day stock drop in company history.
Critics had previously called CEO Subramaniam’s expense control efforts to tackle the company’s bloated overhead too little and too late.
In particular, they were concerned that FedEx has been underperforming rival United Parcel Service (NYSE:) with its more costly unionized workforce.
When the stock market closed on Tuesday, shares of UPS were down 14% from a year ago, versus the 33% drop in FedEx stock.
On Tuesday, FedEx said second-quarter adjusted profit fell to $815 million, or $3.18 per share, from $1.3 billion, or $4.83 per share, a year earlier.
Per-share earnings beat analysts’ estimates by 36 cents, according to Refinitiv I/B/E/S Estimates, while revenue came in at $22.8 billion – below analysts’ target of $23.74 billion.
The company forecast 2023 earnings per share of $13 to $14, compared with analysts’ average estimate of $14.08, according to Refinitiv IBES data.
Investors were not worried by the 2023 forecast and instead applauded the company’s cost-cutting, Ghriskey said.
FedEx’s leaders “know the issues, they see the environment and they’re being proactive about it, and the market likes that,” he added.
