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FedEx: Fewer Flights, Trucks, Offices, and Workers

Thomas Paulson
Sep 16, 2022
FedEx: Fewer Flights, Trucks, Offices, and Workers

  • FedEx raised concerns about the health of the overall economy by negatively pre-announcing a 50% decline in profits and a broad set of expense reduction measures.
  • Revenue will be lower than expected for the company due to macroeconomic pressures in China, services challenges in Europe, and lower U.S. Ground revenue. Ground revenue fell short by $300M, or 3.9%. Ground volume for its May 2023 fiscal year is now expected to decline by -14%, which is lower than last year’s -1% volume decline, and the prior year's +23% increase.  When comparing the May 2019 to May 2023 fiscal year periods, volume will have increased at a +3.8% annual rate. That level of unit growth is similar to the five-year period prior to 2019. In our view, demand for FedEx’s domestic service is on track with the long-term trend. As such, 2022 is more of a digestion period, or post-pandemic unwind, as demand normalizes from the e-commerce gorging on goods that took place during the pandemic and stimulus. Financial results are not on track with the long-term trend and that is an execution and planning issue, as well as market share losses to UPS (and maybe the United States Postal Service and Amazon’s own fulfillment network).
  • To preserve profitability and cash the company is reducing service times and parking aircraft, cutting labor hours, consolidating sort centers, deferring hiring, closing 90 FedEx locations, closing five corporate offices, and curtailing capital spending.
  • Implied by these results is lower freight costs for all in the quarters ahead due to both lower demand for the service, especially Express, and lower fuel surcharges. These in combination support our burgeoning view that deflationary forces are building that could lead to a sharper deceleration during 2023 (see the comments in the economics section of this report about Tractor Supply and Costco).  See Baltic freight container prices below.

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Thomas Paulson

Director of Research and Business Development, Placer.ai

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more.

He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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