Memphis-based FedEx Corp. has reported lower-than-expected earnings in the second quarter ended November 30, 2019 and reduced its outlook for the rest of its fiscal year 2020.
In a December 17 release, the US courier delivery service giant reported that net income was down to US$560 million ($660 million in adjusted terms) in the second quarter of fiscal 2020 from $935 million ($1.08 billion adjusted) the previous year. Diluted earnings per share was $2.13 ($2.51 adjusted) from $3.51 ($4.03) in the same period in fiscal 2019.
Revenue for the quarter under review is $17.3 billion as against $17.8 billion reported for the same period a year ago.
“Fiscal 2020 is a year of continued significant challenges and changes for FedEx, particularly in the quarter just ended due to the compressed shipping season,” said Frederick W. Smith, group chairman and chief executive officer.
The company said its operating results have declined due to weak global economic conditions, increased FedEx ground costs from expanded service offerings, the loss of business from a large customer (presumably Amazon, which has stopped using FedEx this year as it rapidly bolsters its own delivery network), a continuing mix shift to lower-yielding services, and a more competitive pricing environment.
In addition, the later timing of the Thanksgiving holiday resulted in the shifting of Cyber Week into December, which negatively impacted the quarter’s results.
FedEx Express also recorded asset impairment charges of $66 million related to the permanent retirement of 10 Airbus A310-300 aircraft and 12 related engines.
“During the remainder of fiscal 2020, FedEx Express will make further network capacity changes by reducing flight hours. The company continues to evaluate if additional aircraft retirements are warranted,” the release said.
“Our strategies are clear: To develop the premier e-commerce portfolio in the U.S., improve international profitability, enhance our market-leading revenue quality and continue to optimize our U.S. and international networks,” said Rajesh Subramaniam, group president and chief operating officer.
“We are also taking immediate actions to address the short-term challenges facing our business, including eliminating multiple international flights to reflect reduced global air freight demand. These actions combined with benefits from the TNT integration should allow FedEx Express to enter fiscal 2021 with profit improvement underway.”
FedEx now forecasts fiscal 2020 earnings of $9.10 to $10.35 per diluted share before the year-end retirement plan accounting adjustment, and earnings of $10.25 to $11.50 per diluted share before the year-end retirement plan accounting adjustment and excluding TNT Express integration expenses and aircraft impairment charges.
“Our revised guidance reflects lower-than-expected revenue at each of our transportation segments and higher-than-expected expenses driven by continued mix shift to residential delivery services,” said Alan B. Graf, Jr., FedEx executive vice president and chief financial officer.
“In response, we are implementing reductions to the global FedEx Express air network to better match capacity with demand. We are also further restricting hiring and pursuing opportunities to optimize our networks, including investments in technology aimed at improving our productivity and lowering our costs.”