FedEx missed analyst’s expectations for revenue, adjusted operating income, and earnings per share for 1Q23. (Note that FedEx’s 2023 Q1 ran from June through August of 2022.) Revenue of $23.2b missed consensus estimates by $342m and adjusted operating income missed consensus estimates by $542m. Adjusted operating margin declined to 5.3% from 7.2% last year with diluted EPS of $3.49 compared to $4.72 last year and consensus estimates of $5.06. YOY revenue grew 5.6% while operating profit declined by 14.8%.
Overall operating margin decreased to 5.3% from 6.4% last year as operating profit at the Express division declined by 69% with operating margin declining to 1.6% from 5.2% last year. Ground operating profit increased 3% as revenue per pkg increased by 11.6%. Operating margin was 8.4%. FedEx Freight operating profit increased by 67% as revenue per shipment increased 27.1% and operating margin increased to 23.9% from 17.3%.
Package volume declined across all FedEx’ operating divisions with Express volume declining 11.4% worldwide with FedEx management pointing to rapidly softening demand in August, particularly from Asia and within Europe where FedEx experienced service reliability issues. In the US, Express overnight volume declined by 8.1% and Deferred volume declined by 14.5%. At FedEx Ground, FedEx continues to deemphasize its Economy product with volume declining by 37% YOY. B2B volume declined by 1.3% while Home Delivery increased by 4.4%. FedEx Freight reported its highest quarterly profit ($651m) in company history despite a 4.9% decline in LTL shipments.
FedEx management is focused on cost reduction efforts with plans to reduce costs by $2.2b to $2.7b in FY 2023 with $1.5b to $1.7b in cost savings from reduced flight frequencies to better match capacity with demand. Management expects to achieve $350m to $500m in savings at the Ground division by consolidating select sort operations and suspending some Sunday delivery operations. Management also announced the cancellation of several ground capacity expansion projects. FedEx continues to focus on revenue improvement and announced a 6.9% general rate increase on FedEx Express, Ground, and Home Delivery rates as well as a $.50 increase in the residential surcharge effective January 2nd 2023.
The section below shows changes in volume, revenue, and revenue per package at the service level for Q1 FY 23 as compared year over year to Q1 FY 22 and sequentially to Q4 FY 22
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