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The Commercial Appeal

FedEx earnings: What impact will peak season, cuts have on company's third quarter?

By Omer Yusuf, Memphis Commercial Appeal,

2023-03-14

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FedEx will share its third quarter earnings results on Thursday, giving an indication of how the company performed during peak season and if the logistics giant is starting to see benefits from recent cost-cutting measures.

The Memphis-based company’s first two quarterly reports for the fiscal year yielded disappointing results with FedEx making significant changes to its organizational structure and other cost-cutting measures in response.

Notably, FedEx’s stock price has increased over this period with the price closing at $197.39 per share Monday. It was trading at $169.99 on Dec. 21.

Here are the two storylines to watch for in Thursday’s earnings report.

FedEx news: How FedEx, Amazon and UPS are cutting costs in the current economic climate

FedEx cuts: FedEx plans to cut more than $3 billion in costs for 2023. Here's how.

How did FedEx do during peak season?

In January, ShipMatrix reported FedEx’s on-time performance during peak season was at 95.2% , which was a slight uptick from 2019’s performance (94.6%), the last one before the COVID-19 pandemic, according to the firm that analyzes shipping data.

This is partly why TD Cowen , an investment bank and financial services division of TD Securities, expects FedEx to receive better news this time compared to the past two quarterly reports .

“Our revenue estimate is above consensus as we believe peak season occurring later in the calendar and inventory restocking could result in a positive surprise,” TD Cowen said in an analyst note. “We expect another (year over year) decline in earnings given softening demand and difficult comparables.”

Dean Maciuba, managing partner for Crossroads Parcel Consulting and former longtime FedEx sales executive, also thinks FedEx could outperform expectations. He said the company being able to have a manageable volume during the peak season is one reason for that.

“It’s possible the manageable volume led to improved profit,” he said. “It’s just easier to manage and they can manage it more efficiently when it’s not crazy. They probably purchased less third-party transportation. I’m gonna speculate that happened and they were able to save money in purchased transportation year over year.”

Will FedEx start to see the benefit of its cost-cutting?

FedEx announced several notable cost-cutting measures in the past six months as the company seeks to save an estimated $3.7 billion in fiscal year 2023.

The company has attributed the need for continued cuts to low demand and higher operating costs .

TD Cowen anticipates hearing more information from management on their profitability improvement strategy and is curious if FedEx has seen any improvements regarding volume.

“As the economy has reopened, we have seen a decline in online ordering,” TD Cowen said. “We are wondering if there has been any change in the outlook. The International Air Transport Association reported January volume declined 14.9% year over year. This follows declines of 13.6% in October, 13.7% in November and 15.3% in December.”

Maciuba said the looming question for FedEx is if the company can “shrink their way to prosperity.”

“I think there was so much waste at FedEx that it’s possible they can shrink their way, in terms of operational expense and employees, I think it’s legitimately possible that they can shrink their way to better financial performance,” he said.

Omer Yusuf covers the Ford project in Haywood County, FedEx, tourism and banking for The Commercial Appeal. He can be reached via email Omer.Yusuf@commercialappeal.com or followed on Twitter @OmerAYusuf.

This article originally appeared on Memphis Commercial Appeal: FedEx earnings: What impact will peak season, cuts have on company's third quarter?

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