The fourth quarter and full year results just published by FedEx show volumes fell across all of the FedEx businesses in the past quarter. Even for the best performing division, FedEx Ground, volumes have been lower than those of 2022 by single digit percentages per month.
The worst was FedEx Freight, which saw a year-on-year fall in volumes of 17% in May. FedEx Express volumes are also down, but the fall in the International Express business is just in single figure percentages.
The impact on profits has been noticeable. The FedEx Express business saw a painful 47% fall in operational profits, down from $984m in Q4 2022 to $519m in Q4 2023, whilst FedEx saw a 26% drop. However, FedEx Ground bucked the trend with an 18% increase. The ability of FedEx Ground to increase profits in the face of lower volumes was due to greater efficiencies despite higher variable costs. Overall, however, all of the businesses are seeing a trend to lower profits, with the FedEx International Express business in particular seeing a marked fall in yield.
Despite the underlying trajectory of markets, for the full year, net income was up from $3.83bn for 2022 to $3.97 in 2023. Yet revenue fell by 4% to $90.2bn, whilst ‘adjusted’ operating income was down 22% at $5.4bn. The key driver for sustained profits seems to have been cost control.
The summary that Raj Subramaniam, FedEx Corp. president and chief executive officer, gave around these numbers was fairly downbeat. Although he said that “the solid close to the fiscal year demonstrates the significant progress Team FedEx has made in advancing our global transformation while adapting to the dynamic demand environment” he continued to emphasise cost control saying that “FedEx is becoming a more flexible, efficient and data-driven organization as we significantly lower our cost structure, drive enhanced profitability”.
Certainly, FedEx is reducing the size of its operational aircraft fleet and reducing staffing levels. The company also said that its profits expectations for next year were in the “Flat to low-single-digit-percent revenue growth year over year”.
However, it is easy for the operational numbers to obscure the fact that profit increased and that demand for ecommerce driven express services are coming off the top of remarkable highs. FedEx is possibly right to emphasise “flexibility” in its business, as the main challenge will be to adapt to the growth opportunities of the immediate future.
Source: Ti Insights
Author: Thomas Cullen
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