FedEx CEO Accelerates Cost Cutting as Package Volume Drops

FedEx CEO and President Raj Subramaniam is stepping up cost reductions as package volume drops.

“The declining demand trends we saw at the end of Q1 softened further in the second quarter, and we are moving faster and with more determination than ever to accelerate our cost actions,” Subramaniam said Tuesday (Dec. 20) during the company’s quarterly earnings call.

Volumes declined across all segments, Subramaniam added during the call.

The company’s revenue during the quarter ended Nov. 30 was $22.8 billion, down from year-ago figure of $23.5 billion, FedEx said in a Tuesday press release.

Similarly, competitor UPS said Oct. 25, during its most recent earnings call, that it saw its own average daily volume dip 1.5% in the United States and 5.2% internationally during the quarter ended Sept. 30.

UPS attributed the drop to the softening global economy.

During FedEx’s most recent quarter, the company implemented previously planned and incremental cost reduction to mitigate the impact of volume declines, the Tuesday press release said.

As PYMNTS reported, FedEx announced Sept. 22 that it was reducing variable incentive compensation, temporarily parking some aircraft, closing some sort operations and offices, suspending some Sunday operations, reducing vendor utilization, deferring projects, optimizing its network and increasing some rates, surcharges and fees.

“The FedEx team moved with urgency to make rapid progress on our ongoing transformation while navigating a weaker demand environment,” Subramaniam said in the Tuesday press release. “Our earnings exceeded our expectations in the second quarter driven by the execution and acceleration of our aggressive cost reduction plans.”

Now, the company is prioritizing actions to reduce costs in response to weaker-than-expected volume and has identified an incremental $1 billion in cost savings beyond the forecast it made in September. It now expects to generate cost savings of $3.7 billion, according to the release.

Beyond that, FedEx expects to achieve more than $4 billion in annualized structural cost reductions by fiscal year 2025, the release said.

“Our teams have an unwavering focus on rapidly implementing cost savings to improve profitability,” FedEx Executive Vice President and Chief Financial Officer Michael C. Lenz said in the release. “As we look to the second half of our fiscal year, we are accelerating our progress on cost actions, helping to offset continued global volume softness.”