FedEx hikes package rates, details cost cutting as demand weakens globally

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A person walks by a FedEx van in New York City, May 9, 2022.
Andrew Kelly | Reuters

FedEx on Thursday announced rate hikes and detailed its cost-cutting efforts after the shipping giant warned last week that its fiscal first quarter results were hit by weakening global demand.

Shares of FedEx closed slightly higher Thursday.

Last week, the company’s stock sank after it posted preliminary revenue and earnings that fell short of Wall Street expectations. CEO Raj Subramaniam cited a tough macroeconomic environment, and said he expects the economy to enter a “worldwide recession.” The company withdrew its guidance for the year and said it would slash costs.

The shipping giant struggled with light volumes in the quarter, citing headwinds in its Europe and Asia markets. The poor results shocked the market, as investors tried to distinguish market woes from FedEx’s own internal shortcomings.

In issuing its full first quarter results Thursday, the company said that its Express, Ground and Home Delivery rates will increase by an average of 6.9%. Its FedEx Freight rates will increase by an average of 6.9%-7.9%, the company said.

It also said it believes it will save between $1.5 billion and $1.7 billion by parking planes and reducing flights. The closure of certain locations, the suspension of some Sunday operations, and other expense actions will save FedEx Ground between $350 million and $500 million, according to the company.

FedEx said it will save an additional $350 million to $500 million by reducing vendor use, deferring projects and closing office locations.

“We’re moving with speed and agility to navigate a difficult operating environment, pulling cost, commercial, and capacity levers to adjust to the impacts of reduced demand,” said Subramaniam.

For its fiscal 2023, the company expects total cost savings of $2.2 billion to $2.27 billion.

Despite its bleak warning last week, FedEx stood by its 2025 projections set out in June. The company is forecasting annual revenue growth of between 4% and 6% and earnings per share growth of between 14% and 19%.

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