(Re-fixes the dropped word and repetition in the first two paragraphs)
Written by Lisa Bertlin and Nathan Gomez
(Reuters) – FedEx set cost cuts of up to $2.7 billion after lower demand slashed first-quarter profit, but analysts questioned company executives with questions on an earnings call about whether steps such as parking planes and closing some offices were late. Extremely. .
Its shares rose 0.8% to $154.54 but remained near a 52-week low of $150.36 hit early in the session.
The company reported that earnings per share fell 21.3% for the quarter ended August 31, in line with a warning it gave last week. He blamed the rapidly deteriorating global economy and the CFO later said he expected weak trends to continue in most regions for the rest of the current fiscal year.
Analysts and investors were skeptical — in large part because revenue increased 5.5%. On the conference call, analysts asked FedEx (NYSE:) executives questions like whether they had the right team to put the company on the right track. Someone asked why FedEx underperformed the competition United Parcel Service (NYSE:) with the most affordable union workforce.
FedEx has committed to buy back $1.5 billion of its common stock this fiscal year, including $1 billion in the current quarter, even as the company underscored investor and analyst skepticism that it wasn’t cutting costs fast enough to offset the damage to demand.
“The impact of cost actions has moderated the scale of the declines, and operating expenses remain high relative to demand,” FedEx said in a statement detailing its plans to cut costs by $2.2 billion to $2.7 billion in fiscal year 2023.
“Getting the cost down quickly is my priority. We want to get out before that,” said CEO Raj Subramaniam, who was promoted to lead the company in June. He assured analysts that he was confident in his team and experience.
FedEx said it booked $300 million in savings in the first quarter and plans to cut expenses by $700 million in the current second quarter. Most of that comes from reducing the frequency of FedEx Express flights and grounding the equivalent of eight planes, the executives said.
The company said it will also suspend some deliveries on Sunday, reduce compensation for variable incentives aimed at incentivizing and retaining workers, close some parcel sorting centers and delay some projects.
In terms of revenue, FedEx announced plans to raise average rates by 6.9% starting Jan. Executives defended the measure, even as analysts questioned the wisdom of paying its largest-ever increase when demand plummets.
“I am confident that the cost measures we are implementing urgently will enhance efficiency and increase profitability to support our long-term financial goals,” said Michael Lenz, FedEx Chief Financial Officer.
However, Lenz said the company expects weak trends “that will persist across our key geographies” and will lead the cost-cutting initiative for the fiscal year.
Last week, the Memphis, Tennessee-based company said adjusted earnings per share for the quarter ended August 31 fell to $3.44 from $4.37 a year earlier, even though revenue rose to $23.2 billion from $22 billion. It also withdrew its full-year forecast, blaming weak macroeconomics in Asia, service challenges in Europe and weak revenue at the US ground delivery unit. And I repeated these results in a regulatory file that fell hours earlier than expected due to a technical problem.
Said David Katz, chief investment officer at Matrix Asset Advisors in White Plains, New York, which has about 58,000 FedEx shares.
“They still don’t provide guidance for the year,” Katz said. “But they certainly provide a lot of detail in terms of the plan.”
With the stock buyback announcement, FedEx threw bone at frustrated investors, who had been waiting for a turnaround.
“If the wheels are really falling or they don’t have confidence that their plan will work, they may put a share buyback on hold,” investor Katz said.
“They have a lot to get over, but it’s at least a start,” said Gary Bradshaw, a portfolio manager at Hodges Capital Management in Dallas, which owns FedEx stock.