FedEx Corp.’s fiscal third-quarter 2023 results late Thursday came in better than expected on the bottom line but not so great on the top or bottom, as expected, at its air and international unit, FedEx Express.
Total revenue of $22.1 billion was 6% below the same period a year ago, as the company continues to manage through a sudden and, in the case of FedEx Express, ferocious drop in volumes.
FedEx Express reported an 8% drop in revenue, while FedEx Ground, the company’s U.S. ground-delivery business, and FedEx Freight, its less-than-truckload business, posted 2% and 3% revenue declines, respectively.
FedEx Express’ operating income plummeted by 77% year on year, offsetting 32% gains at FedEx Ground and 15% at FedEx Freight. FedEx Ground benefited from better per-package yields and tailwinds from delivery surcharges.
Companywide, operating income dropped 21%, while net income fell 31%. Diluted earnings per share of $3.05 was 27% below last year’s levels, though well above median estimates of $2.67 a share.
The main story for the quarter was a strong focus on costs that allowed the company to mitigate, if not get ahead of, volume weakness. FedEx Express, which has been withdrawing planes and routes for months due to weaker demand, continued to do so in the third quarter. The company parked nine MD-11 aircraft in the third quarter and plans to park six more planes in the fourth quarter.
Costs at FedEx Express fell in the third quarter after rising in the first two quarters. Costs at the unit are expected to decline further in the fourth quarter, executives said.
“Every dollar is under scrutiny,” said Mike Lenz, FedEx’s CFO, referring to the company’s ambitious program called Drive, which is expected to generate $4 billion in total savings by the end of its 2025 fiscal year. Fiscal 2025 begins June 1, 2024.
Yet what investors focused on was an increase in the full-year outlook after a terrible first half. The company said it now expects earnings to range between $14.60 and $15.20 per share from $13 to $14 per diluted share originally projected. The updated figures exclude estimated costs for business optimization and realignment initiatives, FedEx said.
The company expects little tangible help from the macro environment. Volumes were down across all product lines, and business is not expected to improve appreciably into the fiscal fourth quarter, though demand may moderate somewhat.
Shares rose 4.5% in the regular trading session and jumped by more than 11.3% in the extended session.