2023 Promises To Be A Bumpy Ride For Shipping Companies

On March 16th, FedEx Corp FDX hiked its full-year earnings forecast as cost-cutting measures amortized demand weakness at units including FedEx Express, allowing FedEx to top estimates on its adjusted earnings per share but still missing on revenue. Back on January 31st, United Parcel Service Inc UPS reported fourth quarter revenue that fell short of expectations despite growth in U.S. business. On March 9th, the German logistics company Deutsche Post DHL DPSTF flagged that it expects a decline in profit this year due to challenges posed by the uncertain economic environment.

FedEx’s Brightened Outlook

CEO Raj Subramaniam proudly stated that cost-efficient actions are showing results which is why the Memphis, Tennessee-based company was able to improve its outlook for the current fiscal year up from the previous guidance that was in the range between $13 and $14 to a range between $14.60 and $15.20, above Refinitiv’s consensus estimate for adjusted earnings of $13.56.

Every Dollar Is Under Scrutiny

As CFO Mike Lenz explained, FedEx is holistically adjusting to the cost base on all dimensions and all areas. Last month, management announced it is trimming 10% of its officers and directors to reduce costs, along with cutting flights, removing delivery routes, reducing office space, improving courier efficiency and making adjustments to the ground unit that allowed the company to save $1.2 billion on total enterprise costs YoY. During the earnings call, CEO stated that certain staffing-related expenses were down 8% YoY with flight hours reduced by 8% and salary and benefit expenses by 4%.

Flight hours are expected to be reduced by double digits with plans to park additional planes in the undergoing quarter as the company expects to save another $50 million.

Fiscal Third Quarter Figures

Revenue dropped 6% to $22.2 billion with net income amounting to $771 million for the period, down from $1.11 billion earned during last year’s comparable quarter. Adjusting for one-time items, per-share earnings of $3.41 did beat estimates but still translate to a dramatic YoY decline from the $4.59 per share earned during last year’s comparable quarter.

FedEx’s Outlook

To offset cooling demand, FedEx raised its shipping rate by approximately 6.9% in January and during the earnings call, it reported an 11% increase in revenue per shipment during its fiscal third quarter, expecting volumes to improve in the undergoing quarter and into its fiscal first quarter of next year. The company reiterated it is expecting to make more than $4 billion in cost reductions by the end of fiscal 2025. Investors will be updated on April 5thwhere the company will also be expected to comment on tense contract negotiations with its pilots that has been going on since May 2021. 

DHL’s Q4 Results Showed Strong Year, But Offered A Weak Guidance

During the last three months of 2022, DHL’s income dropped 13% in part to a drop in key air freight volumes and an inflation-pressured consumer spending. DHL expects plenty of economic headwinds this year, with the first half being a continuation of the unfavorable trend from 2022’s last quarter.  Deutsche Post noted that this customer caution caused by the elevated prices is also expected to hamper the development of business-to-consumer volumes throughout the year. The group laid out three scenarios for the full year earnings before interest and taxes that ranged between €6 billion and €7 billion, with any return from this range being lower from its record-high 2022 operating income that amounted to €8.4 billion. 

UPS Missed On Revenue And Flags Of A Dip Underway

In its latest report on January 31st, the U.S. shipping company reported mixed fourth-quarter results. For the quarter ended on December 31st, UPS made an adjusted net income of $3.15 billion and $3.62 per share that topped Wall Street’s expectations on earnings with record profit, but it missed on revenue as international and supply chain segments saw volume declines. Moreover, it advised annual revenue could decline for the first time since 2009, providing a full-year guidance that was fell below analyst’s expectations, although things are expected to get better during the second half of the year. Revenue is expected in the range between $97 billion and $99.4 billion, below analysts’ estimates of $99.98 billion as headwinds in the form of rising interest rates, high inflation and other macroeconomic factors continue harming the top line.

2023 Is Expected To Be Bumpy

UPS’ CFO Brian Newman said it. CEO Carol Tomé has been leading with a “Better not Bigger” business strategy that got adjusted to “Better and Bolder” last quarter, as the focus was placed on high-margin shipments rather than just boosting volume. UPS aims to use automation to optimize capacity during periods of shifting volumes, a strategy that was put in practice during the reported quarter in which declining volumes hurt the top line. Along with a bumpy macro environment, UPS is also preparing for labor negotiations in the coming fiscal year with its current contracts set to expire on July 31st.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.