"The Barometer of the US Economy" FedEx's Revenue Has Fallen for Three Consecutive Quarters, Guidance Lower Than Expected, After-Hours Trading Down Nearly 6% | Earnings Report Observations

On Tuesday, June 20th, after the US stock market closed, FedEx announced its fourth quarter and full-year results for the 2023 fiscal year ending May 31st of this year.

Due to the global decline in freight volume, the financial report showed that FedEx's revenue for the fourth fiscal quarter was $21.9 billion, lower than the market's expected $22.65 billion and the $24.4 billion in the same period last year, marking the third consecutive quarter of decline. The adjusted operating profit for the fourth fiscal quarter was $1.77 billion, lower than the $2.23 billion in the same period last year; the adjusted operating profit margin was 8.1%, lower than the 9.2% in the same period last year; the adjusted net profit was $1.25 billion, lower than the $1.8 billion in the same period last year; and the diluted earnings per share were $4.94, lower than the $6.87 in the same period last year, but stronger than the market's expected $4.85.

Looking at the entire fiscal year, adjusted revenue for the 2023 fiscal year was $90.2 billion, lower than the $93.5 billion in 2022; full-year operating profit was $5.37 billion, lower than the $6.87 billion in the previous fiscal year; operating profit margin was 6%, lower than the 7.3% in the previous fiscal year; net profit was $3.84 billion, lower than the $5.5 billion in the previous fiscal year; and diluted earnings per share were $14.96, lower than the $20.61 in the previous year.

In addition to the fourth quarter and full-year results falling short of expectations and being lower than the previous fiscal year, what is more worrying for the market is that FedEx has given a lower-than-expected performance guidance.

In the financial report, the company expects revenue for the 2024 fiscal year to be flat or low single-digit growth YoY; adjusted EPS is expected to be between $16.50 and $18.50, lower than the market's expected median of $18.31; and capital expenditures for the 2024 fiscal year are expected to be approximately $5.7 billion, lower than the market's expected $5.98 billion.

CFO Mike Lenz will retire at the end of July, and the company is looking for a new CFO externally.

After the financial report was released, FedEx's stock price fell nearly 6% in after-hours trading, and UPS fell more than 2% at one point.

FedEx will continue to reduce costs and increase efficiency, and Canadian company's express and ground services will merge.

After two years of demand surge driven by online shopping during the COVID-19 pandemic, the logistics industry in the United States is now facing the problem of declining parcel volume, and FedEx has been seeking to reduce expenses. As consumers shift their spending to entertainment and services rather than online purchases, logistics companies such as FedEx are facing increasing challenges. Last December, FedEx management proposed a cost-cutting and efficiency-improvement action plan, aiming to save $4 billion in expenses by fiscal year 2025. As part of the cost-cutting plan, the company is merging its express and ground services into one business, planning to reduce costs and charge customers higher shipping fees to cope with the slowdown in shipping volume. The company is further reducing flight times and retiring planes to offset ongoing demand challenges.

On Tuesday, FedEx announced that it will merge its Canadian express and ground services, with ground operations and employees transitioning to the express business unit, and this reform will begin in April next year. FedEx said that the merger of these two businesses in the United States will take several years.

Lenz said in the financial report:

In fiscal year 2023, FedEx's cost-cutting and efficiency-improvement action plan has begun to show results. Next fiscal year, we will continue this action with the same intensity to cope with the macro environment full of demand challenges.

After the epidemic, the express business was hit the hardest

After the epidemic, the company's express department was particularly hard hit. During the COVID-19 pandemic, some shippers were forced to transport goods by air due to port congestion, leading to explosive growth in the company's express business. Now that sea freight has returned to normal and commercial airlines are increasing their cargo business, FedEx is forced to reduce flights.

Although demand for the ground services department has weakened, FedEx's customers have begun to shift their shipping volume from UPS to FedEx due to concerns that UPS union workers may go on strike as early as August 1, so this business has benefited greatly in the fourth quarter.

In the fourth quarter of fiscal year 2023, looking at the specific split business, due to the decline in US express volume and international import and export express volume, FedEx's express business revenue decreased by 13% YoY to $10.4 billion; ground service revenue decreased slightly by 2% to $8.3 billion; freight volume decreased by double digits, dragging down the company's freight business revenue by 18% to $2.3 billion.

In the fourth quarter, FedEx's adjusted operating profit for the express business fell sharply by 47% to $519 million; the operating profit for the ground services business increased by 18% YoY; and the operating profit for the freight business decreased by 26% YoY.

Looking at the past six months month by month, the number of domestic express packages in the fourth quarter of this year is still declining, but the rate of decline has narrowed; since February of this year, the YoY decline in international express packages has narrowed to the low single-digit range; the decline in ground services has also narrowed in the fourth quarter, but the decline in freight has shown a significant expansion in the fourth quarter.