FedEx needs to deliver cost-cutting plan as investors’ patience wanes – analysts

FedEx needs to deliver cost-cutting plan as investors’ patience wanes – analysts



Written by Kanaki Deka

(Reuters) – The new FedEx Corp CEO needs to show he can deliver on his promise to implement deep cost cuts, Wall Street analysts said on Friday, after the company laid out plans to cut up to $2.7 billion in expenses for the 2023 fiscal year.

The parcel delivery giant’s plan on Thursday comes after first-quarter earnings were hit by lower demand at its largest unit amid a bleak economic picture.

Although analysts largely supported CEO Raj Subramaniam’s plan, they were skeptical about its implementation after a series of recent missteps at the company and said the pace of cost cuts may not be enough to deal with lower volumes.

FedEx (NYSE) in March appointed Subramaniam, who was chief operating officer, to the top position, succeeding company founder Fred Smith.

The company has been grappling with operational challenges in consolidating its multi-billion dollar acquisition of TNT Express and in dealing with contractor disruption, even as the industry faces the prospect of increased capacity amid a slowdown in volume.

Last week, FedEx withdrew its financial forecasts it released just three months ago, adding to investor frustration about the delay in the turnaround.

β€œThe implementation period will be key to attracting investors to come back to the story despite the current valuation,” Wells Fargo Analyst Alison Polnik Kosik (NYSE:) wrote in a note.

Analysts, frustrated with its performance compared to rival UPS, questioned FedEx executives Thursday about whether they have the right team to put the company on the right track.

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“The efficiency of your assets is literally half that of your nearest competitor, a guild, if I may add,” Barclays (LON πŸ™‚ Analyst Brandon Oglinsky told company executives, referring to UPS.

FedEx shares fell 3.9% to their lowest level in more than two years at $148.50 early Friday. It’s down 40% for the year to Thursday’s close, compared to a 22% drop in UPS shares.

However, not everything is gloomy for the company. Some analysts said FedEx has enough room to cut costs and that pricing power remains in place for now.

“There is ample evidence that there are excess costs at FedEx, which can be reduced through appropriate management focus and execution,” Credit Suisse analysts said.

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