FedEx Facing Business-Breaking Challenges Amid Low Demand
FedEx as a business isn’t exactly flying high right now. The company is looking to cut costs in measurable ways after its profits fell sharply in comparison to last year. FedEx reported that it noticed a particular decline on the Express side of its business.
To prevent any burgeoning business-breaking cataclysms, FedEx is aiming to cut costs significantly. CNBC reported that the delivery giant is looking to slash costs by $3.7 billion in the coming fiscal year. Its current cost-cutting goals are a staggering $1 billion higher than what the company initially outlined earlier in the year.
Some strategies that FedEx is employing to slash its expenditures include grounding planes, closing offices, and increasing shipping prices at the consumer level. The latter two are things that are currently happening across all business sectors. Numerous large-scale corporations have been closing offices and laying off employees in mass to protect their profit margins.
Additionally, inflation has impacted the economy at every level. It has caused businesses like FedEx to incur extra costs. Not wanting to absorb those costs, the burden gets passed down to the consumer. Hence, the delivery rate hikes.
Moreover, FedEx’s move to ground some of its Express planes was likely a wise maneuver. According to CNBC that division’s income reportedly slipped by nearly 65%. As a reaction to the sharp decline, FedEx reduced its Express sector’s operating time by 6% domestically and 7% internationally. The company also expects to ground nearly a dozen more planes in the coming months.
FedEx’s cost-cutting measures are among the more aggressive, but they are purposefully so. FedEx CFO Mike Lenz emphasized in an earnings call, “Our teams have an unwavering focus on rapidly implementing cost savings to improve profitability. 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.”
Wall Street seems to be reacting well to FedEx’s frugal initiatives. Shares for the company rebounded by about 3% after it made its plans public. Still, it has a long way to go if it is to reverse its current predicament. Across the board, FedEx didn’t successfully reach any of its predicted yearly achievements.
Both the company’s net income and sales fell by considerable amounts. FedEx’s net income dropped by over $250 million. Its sales experienced an ever sharper decline and sunk by over $700 million compared to the year prior.
Those are not small losses, even for a company as large and widespread as FedEx. This certainly serves to further support FedEx’s aggressive cost-cutting strategies. Additionally, with fears of an economic recession growing stronger daily, the business is likely taking precautions to safeguard itself in the event that a recessionary period does emerge in the coming months.
Overall, the takeaway is that FedEx is behaving like most other businesses are at present looking for avenues to protect its assets and profit margins all the while stockpiling as much money as possible should they need it to get through a rainy day.
