- FedEx shares traded lower on Wednesday post earnings
- The company issued a soft full-year outlook after seeing its FQ4 sales fall 10% YoY
- FedEx has been aggressively cutting costs to offset consumer demand weakness
FedEx Corporation (NYSE:FDX) shares moved lower on Wednesday after the company reported its fiscal fourth quarter results and offered guidance that trailed average analyst estimates.
FedEx posted a net income of $1.54 billion on revenue of $21.9 billion. For the same period last year, the company posted a profit of $558 million on revenue of $24.4 billion. On an adjusted basis, FedEx earned $4.94 per share, compared to the $6.87 for the year-ago period.
Analysts were expecting adjusted earnings per share of $4.85 on revenue of $22.55 billion. FedEx said its operating results were mostly impacted by lower global volumes. Raj Subramaniam, FedEx president and chief executive officer, said,
“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,”
“FedEx is becoming a more flexible, efficient and data-driven organization as we significantly lower our cost structure, drive enhanced profitability, and deliver outstanding service for our customers.”
In another negative development for the stock, FedEx also announced that its CFO, Michael Lenz, will retire on July 31. He will remain at the company until December 31 in the capacity of a senior adviser to help with the transition.
Citi analysts argue that Lenz’s departure is likely to be viewed as a positive by the market, which will further temper pressure on FDX shares after a disappointing outlook.
Cost-cutting Actions Fail to Boost Outlook
The company has been placing an increased focus on cost-cutting to offset declining revenue. The weakening consumer demand has prompted FedEx to initiate multi-billion dollar cost-cutting activities to convince investors about its growth profile.
FedEx intends to cut at least $4 billion in costs by the end of 2025. The delivery business added that it expects to generate savings of $1.8 billion from its cost-cutting actions. A few months ago, the company also announced it would consolidate its air and ground operations into a single business.
Speaking on the earnings call, CEO Subramaniam said the company exceeded its target with U.S. headcount down by about 29,000 in fiscal 2023.
“The quarter’s results were negatively affected by continued demand weakness and cost inflation, partially offset by cost-reduction actions and U.S. domestic package yield improvement,” management said in a statement.
In addition to the cautious commentary, shares were mostly hit by the worse-than-expected full-year guidance. FedEx said it sees adjusted EPS at $17.50 (up or down $1), missing the $18.31 expected by polled Wall Street analysts.
“We’re entering fiscal 2024 with a continued focus on areas within our control and a commitment to execute swiftly on our priorities,” CEO Subramaniam said on the call.
“This focus will support sustained profit improvement in FY 2024 through an environment that we expect to remain marked by demand challenges, particularly in the first half.”
The Big AI Push
The delivery business said it expects to spend $5.7 billion on capital expenditure, better than the $5.98 billion expected by the Street. Like many other global companies, FedEx has been heavily investing in artificial intelligence (AI) and machine learning (ML) technologies in recent years. On the call, CEO Subramaniam said the company has continued to use its AI and ML tools to leverage “the vast shipment data.”
FedEx Dataworks, the company’s data-focused initiative launched in 2020, is aiming to increase efficiency as far as the company’s network operations are concerned. Another key aim of this program is to enhance visibility and supply chain control.
“For most companies, the data generated across every aspect of the supply chain is something that they are simply trying to ‘manage’ rather than cultivate,” said FedEx Dataworks CEO Sriram Krishnasamy. “Data and information are far too often trapped in silos, tracked and reported on without having their full strength realized.”
The AI technology is seen as a “critical” component of FedEx’s push into the next-gen world. The AI models are used to better predict needs for orders, especially during high-volume periods like holidays.
FedEx Express also unveiled an AI-powered intelligent sorting robot called “DoraSorter,” which improves the shipment handling process. FedEx said the AI robot can carry up to 10 kilograms of packages, covering up to 100 destinations simultaneously.
“As we look to build a data-driven, smart logistics network to help our customers thrive in the digital economy, this alliance with Dorabot is part of becoming the network for what’s next. AI-powered technology will continue to change how we support customers in the region and enhance supply chains for the future,” said Kawal Preet, president of the Asia Pacific, Middle East and Africa (AMEA) region at FedEx Express.
Last year, FedEx announced it will shut down its robot delivery program “Roxo.” According to Krishnasam, the robot didn’t meet “necessary near-term value requirements.” Instead, the company chose to focus on the more attractive near-term opportunities.
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Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.