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FedEx raises expectation as cost cutting continues

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FedEx saw fiscal third-quarter revenues and profits fall on last year but the company beat expectations and has raised its outlook as its cost-cutting measures continue.

For the quarter ending February 28, the parcels giant reported a 5.9% year-on-year revenue decrease to $22.bn, operating income was down 24.5% to $1bn and net income was down 36% to $771m.

However, FedEx said it exceeded its earnings forecast in a challenging demand environment.

The company said that volumes declined across its express, ground and freight divisions but this had been partially offset by higher yields.

The company’s cost-cutting programme – announced last year – also boosted performance with savings of $1.2bn during the quarter.

During the quarter FedEx reduced flight hours by 8% and salary and benefit expenses by 4%.

The company also parked an additional nine aircraft, downgauged on certain routes and implemented various productivity improvements.

As a result of these actions, FedEx mitigated 45% of total revenue declines on an adjusted basis.

As a result of the above-expectation performance, FedEx raised its outlook for the year for earnings per share to $13.80-$14.40 compared with a previous forecast of $12.50 to $13.50.

The company also said that further cost savings would be implemented during the current quarter.

“We expect progress to accelerate in the fourth quarter, with total flight hours expected to be down double digits and further full-time-employee reductions by year-end,” said Raj Subramaniam, FedEx Corp president and chief executive.

“This will support mid- to high single-digit reductions in total expenses year over year at Express. We also plan to temporarily park additional aircraft in the fourth quarter.”

On the companies DRIVE transformation programme, he added: “We are on track to deliver $4bn of permanent cost reduction by the end of fiscal 2025. I’m very pleased with the progress the team has made in identifying actions that will not only reduce costs but will make our network more agile and flexible as we execute Network 2.0. One part of this effort is to reconfigure our air network.

“This requires many steps, including plans currently being developed to phase out our fleet of MD-11s. Our aircraft modernization program and use of 777s and 767s affords us the ability to flex our plans. ”

On demand, the company thinks that volume declines will moderate in quarter four compared with quarter three and also quarter one compared with quarter four.

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