FedEx Corp pulled back on its profit guidance for the rest of the fiscal year as its performance missed expectations and macroeconomic trends significantly worsened.
In a stunning move before reporting its 2023 first quarter results, the logistics behemoth withdrew its financial guidance and announced cost-cutting measures as it warned of further economic challenges ahead.
FedEx said first quarter results were adversely impacted by global volume softness that accelerated in the final weeks of the quarter.
In particular, it noted that FedEx Express' results were particularly impacted by macroeconomic weakness in Asia and service challenges in Europe, leading to a revenue shortfall in this segment of approximately US$500 million relative to company forecasts.
FedEx Ground's revenue also missed company expectations by approximately US$300 million.
While the company took immediate and decisive action to adjust its cost base, it noted that the impact of cost actions lagged in volume declines, and operating expenses remained high relative to demand.
Below expectation performance in Q1
"Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the US," said Raj Subramaniam, FedEx Corporation president and chief executive officer.
"We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first quarter results are below our expectations."
"While this performance is disappointing, we are aggressively accelerating cost reduction efforts and evaluating additional measures to enhance productivity, reduce variable costs, and implement structural cost-reduction initiatives," Subramaniam added, noting that despite the setback, he remains confident in achieving FedEx fiscal year 2025 financial targets.
As part of its cost-cutting measures, FedEx announced that it is shuttering storefronts and corporate offices while putting hiring on freeze as demand slumped.
The company based in Memphis, Tennessee said it will also reduce flight frequencies and temporarily park aircraft.
Business conditions to further weaken
"As a result of the preliminary first quarter financial performance and expectations for a continued volatile operating environment, FedEx is withdrawing its fiscal year 2023 earnings forecast provided on June 23, 2022," FedEx said.
"While continuing aggressive cost reduction actions, the company expects business conditions to further weaken in the second quarter," it added.
FedEx said for the second quarter of fiscal 2023, it is expecting revenue of US$23.5 billion to US$24.0 billion. It also cut its fiscal 2023 capital spending by US$500 million to US$6.3 billion.
Separately, FedEx CEO Raj Subramaniam told CNBC that he expects the economy to enter a "worldwide recession."
"I'm very disappointed in the results that we just announced here, and you know, the headline really is the macro situation that we're facing," Subramaniam said as the company missed estimates on revenue and earnings in its first quarter.
FedEx is set to announce the company's quarterly performance on September 22.