Yahoo Finanza FedEx’s Attempts to Trim Expenses May Be Too Little Too Late for Investors
FedEx posted mostly mixed but disappointing fourth quarter earnings on June 20th, amid a global dip in demand for shipping services as an economic downturn looms and the world returns to more ‘business as usual’ activity post-pandemic.
FedEx revenues have dropped for three consecutive quarters now, and the company has underperformed Wall Street expectations for all three of those periods. Cost-cutting efforts had been widely publicized in previous months, and there was cautious optimism among industry experts ahead to the results announcement. However, the company’s shares dipped in early Wednesday trading after earnings eventually missed expectations and forward guidance did little to assuage concerns. Prices are still down today.
It was also noted in the report that Chief Financial Officer, Michael Lenz, will be retiring on July 31, 2023, and in order to guarantee a seamless transition while seeking a replacement, Lenz will continue to act in the capacity of senior adviser until the end of the year.
More on the Numbers
FedEx reported lower-than-expected sales of $21.9 billion for the fourth quarter of 2023 to May 31st, down from $24.4 billion in the same period the previous year and below the $22.65 billion average analyst forecast.
During the quarter, the company posted diluted profits per share (EPS) of $6.05, while its adjusted diluted EPS of $4.94 narrowly above analyst predictions of $4.83.
Impairment costs for goodwill and other assets connected to the ShopRunner purchase were $47 million, or $0.17 per diluted share, and there was a further impairment charge of $70 million for a number of strategies to improve operations- more on that later.
During the 2023 fiscal year, FedEx engaged in the repurchasing of nine million shares of its stock, leaving approximately $2.3 billion in its authorized share repurchasing fund. Of which, the company said it would buy back $2 billion of its common stock in the new financial year.
Streamlining Operations in Progress
FedEx is currently in the process of reinventing itself into the smart supply chain that offers its clients the greatest degree of adaptability and productivity. As shippers brace for an economic downturn, the delivery surge brought on by the pandemic has waned for FedEx and other rival package carriers.
As a result, the company will implement significant long-term changes to its Express, Ground, and Freight operating units via its “Network 2.0” initiative and a program called DRIVE.
Trimming 29,000 positions during the last fiscal year- in its attempts to cut costs- the company has decommissioned aircraft, closed offices, and reduced Sunday deliveries to hopefully save around $4 billion in permanent expenses by the end of its 2025 financial year.
The decision to permanently retire from service 18 aircraft and 34 related engines resulted in a non-cash impairment charge of $70 million, or $0.21 per diluted share, in the company’s fourth quarter results. This was in keeping with the strategy of updating its air fleet, strengthening its worldwide network, and adjusting its air network capacity to meet future demand.
On Tuesday, the company said that it will be grounding 29 more planes in the fiscal year that began on June 1st, in an effort to safeguard earnings as demand declines.
The daily transportation of millions of parcels will appear quite different from today’s operations as the vision of a reformed FedEx comes to reality over the next few years. However, given the magnitude of the redesign, it will be difficult for FedEx’s pursuit of efficiency via DRIVE and Network 2.0 to be realized without a few teething problems.
Subdued Outlook Ahead
FedEx’s upper management shared its forward guidance, suggesting they anticipate growth to be “flat to low-single-digit percent” revenue on an annual basis.
The company also estimates that it will invest $5.7 billion on capital expenditures to fuel efficiency improvements, network optimisation initiatives, and increased use of automation, and they further expect the DRIVE project will result in $1.8 billion in permanent cost savings.
The company has projected earnings per share of $16.50 to $18.50 for the fiscal year 2024, below the $18.36 predicted by analysts.
FedEx’s Stock Price Still Up Almost 30% Since January
Shares of FedEx have been on the rise since late last year, gaining momentum following the company’s last two quarterly reports. Investors seem to have been encouraged by the package delivery company’s attempts to save billions in expenses, which have allowed them to look beyond sluggish consumer demand.
Since Tuesday, however, investors have expressed worries about the company’s bottom-line improvements resulting from its efforts to streamline operations. Despite this, the company’s stock price has still risen by approximately 30% since the start of the year. But it has declined by about 28% since reaching its peak on June 1, 2022. The question arises whether it is the right time to buy the stock in anticipation of a continued rebound or if it would be better to engage in short selling.
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This article was originally posted on FX Empire
