FedEx Corp. reduced its full-year profit outlook after reporting lower-than-expected quarterly earnings due to decreased demand for package deliveries.
The Memphis, Tennessee-based company suffered from reduced demand for priority services as customers opted for more affordable shipping options.
"The first quarter results were negatively affected by a mix shift, which reduced demand for priority services, increased demand for deferred services, and constrained yield growth," FedEx said.
In addition, higher operating expenses and fewer operating days also negatively affected the quarter's results.
[Source: FedEx]
"Despite a challenging quarter, we remain focused on transforming our network, improving our efficiency, lowering our cost-to-serve, and enhancing our ability to adapt with speed to evolving market dynamics," said Raj Subramaniam, FedEx Corp. president and chief executive officer.
"Overall, I remain confident in the value-creation opportunities ahead as we focus on reducing our structural cost, growing revenue profitably, and leveraging the insights from our vast collection of data as we continue to build the world's most flexible, efficient and intelligent network," he added.
Federal Express' operating results decreased during the quarter due to one fewer operating days and lower US domestic priority package volume, partially offset by higher International Economy package volume.
Increased wages and purchased transportation rates also negatively impacted operating results, although partially offset by the reduction of structural costs from the company's DRIVE program initiatives.
It added that FedEx Freight's operating results decreased during the quarter due to a decline in weight per shipment, reduced priority shipments, and one fewer operating days, partially offset by higher base yield.
On June 1 this year, FedEx Ground and FedEx Services were successfully merged into Federal Express, becoming a single company operating a unified, fully integrated air-ground express network.
FedEx Freight continues to provide less-than-truckload freight transportation services as a separate subsidiary.
Federal Express and FedEx Freight now represent the company's major service lines and constitute its reportable segments. Additionally, the results of FedEx Custom Critical are now included in the FedEx Freight segment instead of the Federal Express segment.
FedEx slashes forecast
Due to the softer market performance, FedEx said it is revising its fiscal 2025 revenue and earnings forecasts.
It now expects a "low single-digit percentage revenue growth rate year over year, compared to the prior forecast of a low-to-mid single-digit percentage increase."
Earnings per diluted share of US$17.90 to US$18.90 before the MTM retirement plans accounting adjustments compared to the prior forecast of US$18.25 to US$20.25 per share and US$20.00 to US$21.00 per share after also excluding costs related to business optimization initiatives, compared to the prior forecast of US$20.00 to US$22.00 per share.
"Our revised outlook reflects our continued confidence in the execution of our DRIVE initiatives and the effects of our recent pricing actions, which we expect to help offset weaker-than-expected demand trends," said John Dietrich, FedEx Corp. executive vice president and chief financial officer.
"We will continue to manage our capital prudently and remain committed to our plan to return US$3.8 billion to stockholders this fiscal year," he added.
FedEx's wide-ranging program, DRIVE, centres around trimming expenses by improving efficiency throughout its operations. FedEx expects the program to reduce its costs by more than US$4 billion by fiscal year 2025 and lay the foundation for Network 2.0, in which the company will consolidate stations and delivery routes.
FedEx has identified three different areas of the company — Express, Ground and shared and allocated expenses — that DRIVE will target.