Dive Brief:
- FedEx Freight expects further pressures on volume levels and profit margins in its next quarter, even in the midst of heavy cost-cutting measures, FedEx CFO Mike Lenz said on an earnings call last week.
- The brunt of profit margin pressure will come in Q1, which ends Aug. 31, and that will mitigate for the LTL through the remainder of FY2024, Lenz said.
- "Freight margins will remain strong in FY ‘24, but lower than FY ‘23 given significant volume reductions and yield pressure," the CFO said.
FedEx Freight volume decline accelerates in 2023
Dive Insight:
While FedEx is expecting volume declines to continue moderating at its Express and Ground operating companies, it's a different story for its LTL unit.
For the quarter ending May 31, both revenue and average daily shipments at FedEx Freight fell 18% YoY. The LTL has trimmed costs via furloughs, parking and selling equipment, limiting employee hiring and other measures to match a weak demand environment, contributing to a 15% reduction in operating expenses for the quarter.
Those actions may have eased pressures to Freight's bottom line, but it was still a difficult quarter. Operating income dropped 26% YoY, outpacing a 22% decline at FedEx overall.
Amid a market downturn, Freight is focused on maintaining pricing discipline, FedEx President and CEO Raj Subramaniam said on the call — Freight's revenue per shipment was about flat YoY. The unit will see further relief on its balance sheet once the closure of 29 service centers is complete in August.
"Consolidation will improve service levels, while lowering our cost to serve," Subramaniam said.
The closings, concentrated in Arkansas and surrounding states, impacted smaller and less efficient facilities, according to Lenz.
"As we lean into what could be a demand recovery, that volume could be accommodated within the larger facilities and that just has that much more incremental contribution as and when that [volume] comes back," Lenz said.
