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FedEx Plans Additional Costs Cut amid Weakening Global Demand

American transport company FedEx (NYSE: FDX) plans to cut more costs as lower demand continues to affect the company’s profits. FedEx said it would cut $1 billion more in cost as weak demand hurt its quarterly profit. This comes after a September announcement about cost-cutting measures amid the global softening market. These measures included parking planes and the closure of some offices. At the time, the company also upped its delivery rates. It increased its Express, Ground, and Home Delivery rates by an average of 6.9%. According to FedEx, it would save between $1.5 billion and $1,7 billion by parking planes and reducing flights.

On the other hand, closing selected officers and suspending Sunday operations would help FedEx Ground save between $350 million and $500 million. FedEx expected $2.2 billion to $2.27 billion in savings for its fiscal 2023 as it cut costs. During the period, the CEO Raj Subramaniam warned that the economy would enter into a “worldwide recession.”

FedEx to Cut More Cost Beyond September Forecast

However, FedEx said on Tuesday that it would be able to cut an additional $1 billion beyond its September forecast. The latest plan is to save up to $3.7 billion for fiscal 2023. The chief financial officer, Mike Lenz, wrote:

“Our teams have an unwavering focus on rapidly implementing cost saving to improve profitability. As we look to the second half of our fiscal year, we are accelerating our progress on cost actions, helping to offset continued global volume softness.”

FedEx said it is important to cut fiscal 2023 costs to align with weaker-than-expected volume. During an earnings call, the company revealed that a large percentage of the additional cuts would come from its Express Unit, which includes more flight cuts. Some other cuts will affect the Ground unit in pickup and delivery. The transport company has already reduced 6% of US domestic and 7% of international flight hours.

Furthermore, FedEx plans to push its global transformation through DRIVE. DRIVE is a program designed to improve the company’s profitability on a long-term basis. Also, the program is targeted at achieving the set financial goals.

“Through DRIVE, the company expects to achieve more than /44 billion in annualized structural cost reduction by fiscal 2025. FedEx plans to host a DRIVE update call during the first half of calendar 2023 to provide additional details on the company’s ongoing transformation.”

At press time, FedEx stock trades up 4.66% to $172.01. The company’s stock has been steadily declining, except for gaining 7.24% in the last three months.

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FedEx Plans Additional Costs Cut amid Weakening Global Demand