FedEx profits improve as cost-cutting takes effect

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FedEx profits improved in the third quarter of its fiscal year despite revenues coming under pressure due to weak market conditions.

The express giant saw its fiscal year third-quarter revenues decline by 2% year to $21.7bn, operating income improved by 19% on last year to $1.2bn, and net income was up 14% to $879m.

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The company’s share price increased on Friday morning due to its better-than-expected profit performance. FedEx said the improved profit performance resulted from its drive cost-cutting scheme that aims to reduce expenses by $4bn.

In the third quarter, its ground network achieved savings of $290m, air costs were down $110m, and general/admin expenses were reduced by $150m.

The savings in the air network are down to a “focus on structural transformations and reduction of flight hour costs” and optimising its network in Europe.

The company has also parked aircraft to help reduce costs and respond to weaker demand levels.

The revenue decline resulted from weaker demand and a move to less expensive transport services from customers.

Regarding third-quarter divisional performance, FedEx Express saw revenues decline 2% to $10.1bn but operating income up 96% to $233m.

FedEx Express’s operating results improved due to lower structural costs from DRIVE initiatives and the benefit from one additional operating day, partially offset by lower revenue.

FedEx Ground’s revenues improved by 1% to $8.7bn, and operating profits improved by 12% to $942m. FedEx Ground’s operating results increased due to lower structural costs from DRIVE initiatives, higher base yield, and reduced self-insurance costs.

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The cost per package was flat, as lower line-haul expenses and improved dock productivity offset higher first—and last-mile costs. Revenues in its freight segment slipped by 26% to $2.1 billion, and operating profit fell by 12% to $340 million.

FedEx Freight operating results decreased due to lower fuel surcharges, reduced weight per shipment and lower shipments, partially offset by higher base yield and the benefit from one additional operating day. Last year’s third-quarter operating income included a $30m gain on the sale of a facility.

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Author: Anastasiya Simsek