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FedEx to ground aircraft after weak market forces profit warning

Logistics stocks faced a battering after FedEx withdrew its forecast, following an “earnings miss of epic proportions”.

A trading update released yesterday showed Q1 results were well below expectations, with FedEx Express seeing a revenue shortfall of $500m and FedEx Ground missing revenue forecasts by $300m.

The integrator said its Express division had been affected by macroeconomic weakness in Asia and service challenges in Europe.

FedEx, which has an annual shareholders’ meeting next week, said it had taken “immediate and decisive action to adjust its cost base”. However, the moves had “lagged volume declines, and operating expenses remained high relative to demand”.

“Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the US. We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first quarter results are below our expectations,” said Raj Subramaniam, FedEx president and chief executive officer.

“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.

“These efforts are aligned with the strategy we outlined in June, and I remain confident in achieving our fiscal year 2025 financial targets,” he added.

The cost initiatives outlined include a reduction in flight frequencies and temporarily parking aircraft; cuts in labour hours; consolidation of some operations; a reduction in Sunday operations; the cancellation of some planned network capacity projects; deferred hiring of staff; and the closure of some 90 FedEx office locations.

FedEx said it expects business conditions to weaken again in the second quarter. While it is cutting capital spending, it will continue to repurchase $1.5bn of FedEx common stock, of which $1bn will be bought in the second quarter.

Credit The Loadstar by Alex Lennane

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