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FedEx Prelim Results Reveal Gloomy Economic Outlook

FedEx Corp. said Thursday it plans to shutter more than 90 offices, park some planes and pare back Sunday operations for its Ground business as it looks to cut costs in response to falling package volume. 

The Memphis, Tenn.-based delivery company warned of revenue being off by about $500 million from initial projections for its FedEx Express business, while Ground revenue is down about $300 million from what the company originally expected. The update was part of the company’s preliminary results update for its fiscal first quarter 2023 ended Aug. 31. 

“Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S.,” FedEx Corp. president and CEO Raj Subramaniam said Thursday. “We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first quarter results are below our expectations. While this performance is disappointing, we are aggressively accelerating cost reduction efforts and evaluating additional measures to enhance productivity, reduce variable costs and implement structure cost-reduction initiatives.” 

FedEx said it expects first quarter revenue to come in at $23.2 billion with earnings of $3.33 per share. That misses analyst expectations of revenue totaling $23.6 billion and earnings per share of $5.14.

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The company said total revenue for the current, fiscal second quarter is estimated to be between $23.5 billion to $24 billion. Wall Street analysts on average were estimating revenue of $24.9 billion. 

FedEx shares plunged as much as 16 percent in after-hours trading Thursday, after the parcel giant withdrew its fiscal 2023 forecast and offered a somber outlook on business conditions. 

The company’s shares were trading at about $172, with the company’s recent market cap at $53.2 billion. 

Shares of United Parcel Service Inc., Inc. and Pitney Bowes Inc. were also down in after-hours trading. 

The delivery company said it expects business conditions to continue sliding downward during the current quarter.

Subramaniam went on to tell CNBC Thursday the global economy is headed into a recession. 

“The weekly numbers are not looking good so we just assume at this point that the economic conditions are not really good,” he told CNBC, adding, “We are a reflection of everybody else’s business, especially the high-value economy in the world.”  

A big chunk of FedEx’s cost-cutting strategy will come in temporarily grounding planes and paring back flights. FedEx will also limit new hires, while reducing worker hours. FedEx Ground Sunday operations will be cut in some markets. 

On the real estate side, the company will give back more than 90 office locations and five corporate office facilities. Suggested additional plans are in the works to further reduce its portfolio.  

The CEO went on to confirm the company is still on track to meet fiscal year 2025 numbers, which includes 4 percent to 6 percent compound annual revenue growth and adjusted consolidated operating income to increase by $3 billion to $4.5 billion. 

FedEx is expected to hold its annual meeting Sept. 19, with the full results of its fiscal first quarter to follow on Sept. 22. 

The corporate update came the same day a logistics trade group, established by a former FedEx Ground contractor, suggested the company’s independent contractor network faces problems with low morale and concerns over the profitability of their businesses. 

The Trade Association for Logistics Professionals (TALP) said it surveyed 1,200 Ground contractors earlier this month, with 89 percent of respondents saying their businesses are not profitable and 97 percent expressing no confidence in Ground CEO John Smith. 

Survey participants represent roughly 20 percent of the overall Ground contractor network of about 6,000.  

FedEx is currently suing TALP founder Spencer Patton and cut his contracts on 225 routes late last month, accusing him of making misleading statements about the company to further boost his FedEx Ground consulting business.