FedEx Reveals Efforts to Become More Productive, Leaner Business

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FedEx Corp. (NYSE:FDX) announced a significant business restructuring on Wednesday that will see the delivery giant consolidate its Express and Ground units into a single entity. With this move, FedEx aims to reduce costs and reinforce its position to compete with the likes of United Parcel Service (UPS) and Amazon.

In addition to the business reshuffle, FedEx also announced a decision to raise its annual dividend rate by around 10%, or 44 cents, to $5.04 per share.

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As a result, FedEx shares closed higher as investors reacted positively to the company’s new plans. Moreover, shares were boosted by the rating upgrade at Raymond James, whose analysts moved to ‘Outperform’.

The business revamp will “drive better margins, earnings, and FCF in out years,” analysts told clients in a note.

What Changes FedEx is Making?

FedEx Ground, the company’s outsourced package delivery unit, will be integrated with FedEx Express, the overnight air delivery unit, nearly a year after activist investor D.E. Shaw called for changes at the company and acquired two additional board seats.

This, along with the fading demand for e-commerce delivery services and potential recession risks in the past year has put additional pressure on FedEx CEO Raj Subramaniam to streamline the business.

"We believe now is the right time to reorganize how we work together," Subramaniam said at a company meeting in New York City.

He added that the consolidation is expected to help simplify interactions with customers and facilitate the company’s cost-cutting efforts. Furthermore, the moves would make the company more reliant on e-commerce rather than on business-to-business (B2B) services. Subramaniam became CEO a year ago after founder Fred Smith stepped down.

During an investor event on Wednesday, Subramaniam outlined improvement plans for the company, voicing his commitment to improving the utilization of trucks and planes by disposing of excess equipment. He also said the company will try to improve its customer demand forecasting efforts.

“There’s opportunity to continuously improve the efficiency of our operations,” he said “Our customers are going to see a difference.”

The parcel-delivery company has been facing a months-long slump in shipping demand, forcing it to work towards cutting billions of dollars in operating costs in the following years. As of May 2022, FedEx had 412,770 employees in the U.S., representing 75% of its total full- and part-time workforce. The company expects its U.S. staff to be down by around 25,000 by the end of May 2023.

The consolidated business is expected to handle all deliveries as of June 2024 as part of the company’s broader scheme to slash $4 billion in permanent costs by its fiscal 2025 year.

John Smith, the current president, and CEO of FedEx Ground, will become president and CEO of FedEx Express’ U.S. and Canada ground operations, and will also spearhead surface operations at FedEx Express, FedEx Ground, and FedEx Freight businesses from April 16.

As part of the revamp, FedEx Freight will continue offering freight transportation services as a standalone entity under Federal Express Corp. Smith said the restructuring will allow FedEx to transition to “one van, one neighborhood deployment” for package deliveries, and “one truck, one service area” for freight services.

The company’s drivers across all three major units are estimated to cover 3.4 billion miles in the fiscal year ending May, which is equal to 100 trips to Mars.

Improving Profitability

Last month, FedEx hiked its fiscal 2023 profit forecast in the face of the market downturn, citing advancements in its plan to reduce $3.7 billion in expenses from its global delivery business. Furthermore, the company also reported a better-than-anticipated quarterly profit in spite of a volume slump.

FedEx reported adjusted income for the fiscal Q3 of $865 million, or $3.41 per share, down $1.18 from the year-ago quarter, but 68 cents higher than consensus estimates. Revenue came in at $22.2 billion, down 6% year-over-year, and below analysts’ expectations.

Looking ahead, the Memphis, Tennessee-based delivery firm estimated an adjusted profit in the range of $14.60 to $15.20 per share for its fiscal year ending May 31, up from its previous outlook for $13 to $14 per share, and better than the consensus projection of $13.56 per share, according to Refinitiv.

The company noted a volume slump in its Express, Ground, and Freight trucking units. However, its cost-cutting efforts helped the company generate more revenue per delivered package, it added.

FedEx’s extensive cost-cutting initiative has seen the company shut down numerous offices, cut jobs, reduce flights, ground airplanes, and halt unprofitable Sunday deliveries in distant areas.

"Our cost actions are taking hold, driving an improved outlook for the current fiscal year," said in a statement last month.

The company’s CFO Michael Lenz said during the earnings conference call that market conditions are expected to continue weighing down on revenue and operating profit in the ongoing quarter, arguing that “every dollar is under scrutiny.” As part of its aggressive cost-reduction measures, FedEx executives said they would park additional aircraft in the current quarter.


FedEx shares are trading higher after the company announced a major business revamp that will see FedEx Express, FedEx Ground, FedEx Services, and other FedEx operating companies into Federal Express Corporation. In addition to the announced dividend hike, the company’s stock was boosted by favorable analyst comments and rating changes.

Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.