FedEx continues to suffer. The Memphis based express carrier’s latest quarterly results for Q1 2025, released on Friday, showed that the air and land express market has continued to look for cheaper services. FedEx Corporation described this as a “mix shift” that had “reduced demand for priority services, increased demand for deferred services, and constrained yield growth”. The good news was that FedEx is continuing to get a grip on its cost base.
Year-on-year, revenue for the quarter for the whole company edged down by 4.6%, whilst operating profit was down 38% at US$1.08bn as compared to the first quarter last year on a GAAP basis. Profit margins fell from 6.8% to 5% year-on-year. Admittedly these results were affected by one-less working day during the period, however the underlying demand picture was static or declining.
The results are complicated by the continuing presence of FedEx Freight in the numbers, despite the desire of FedEx Corporation to sell this road freight subsidiary. However, just focussing on the express business, the demand for more expensive ‘priority’ services in the US was markedly weaker, with cheaper ‘Ground’ services less badly affected. However, ‘International Export Package’ has been growing consistently in high single digit percentages for two quarters. FedEx described pricing as “very competitive but rational”, with yields in low single digit percentages.
What FedEx was keen to point-out in discussions around these results, was the performance of its ‘Drive’ cost control program. This, FedEx asserts, has “delivered $390M of structural cost savings in Q1”, something it seems to be focussed on is operational improvements, such as better network design.
The fact that FedEx continues to be so focussed on costs illustrates that it remains pessimistic about the trajectory of the market, or rather its position within that market. Reflecting this, the company said that it expected “a low single-digit percentage revenue growth rate year over year, compared to the prior forecast of a low-to-mid single digit percentage increase”. What FedEx hopes will mitigate the meagre returns it has achieved over the past quarter is a less tough pricing environment that will enable higher rates.
Source: Ti Insight
Author: Thomas Cullen
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