Analysts Think FedEx Corp Must Slash Costs as Investor Patience Wanes

FedEx Corp

Wall Street analysts said on Friday that FedEx Corp (NYSE:FDX) Corp’s new chief executive must demonstrate that he can play catch up on costs without further deteriorating service. This comes after the worldwide transportation giant intends to save up to $2.7 billion in spending for fiscal 2023.

FedEx Corp Response to Internal Failures

FedEx Corp (NYSE:FDX) increased the pressure on CEO Raj Subramaniam to solve internal failures and respond to a darkening global economy that damaged the company’s profitability during the company’s fiscal first quarter. The strategy was disclosed on Thursday.

Several experts have stated that they will no longer give the current CEO of FedEx, who took over the position in June after Fred Smith, the benefit of the doubt.

Stifel analysts penned the following advice for clients in a letter to investors: “This is 1) now a “show me” story, and 2) management must be careful not to go so deep as to damage already sub-optimal post-pandemic service standards.”

Due to the deflation of the pandemic shipping bubble, the delivery sector is struggling with the possibility of having a surplus capacity that may reduce profits.

However, FedEx (NYSE:FDX) has its own set of problems. Because of its organizational structure, which separates the operations of its Express, Ground, and Freight units into their departments, it has cost redundancies that are difficult to eliminate.

FedEx is also more vulnerable to a decrease in demand for air shipments coming out of Asia than its competitors, such as United Parcel Service (NYSE:UPS) and Deutsche Post (OTC:DPSGY) DHL Group.

One analyst described the company’s integration of its multi-billion dollar TNT Express purchase in Europe as an “unmitigated disaster.” This description was given since the integration has been so complex. And Subramaniam increased the temperature on the simmering dissatisfaction in FedEx’s U.S. Ground delivery contractor network by labeling it “far more of a perception issue than reality.” This raised the temperature of the simmering anger.

FedEx (NYSE:FDX) canceled the financial prognosis that it had published just three months before, which has caused investors who were betting on a recovery to feel frustrated. This happened just last week.

During Thursday’s conference call with management, an analyst for Barclays (LON:BARC), Brandon Oglenski, succinctly expressed the exasperation felt by investors and other analysts.

He was alluding to UPS when he made the statement. “Your asset efficiency is half that of your nearest rival, which is unionized, if I may add,” he explained.

The action plan and statements made by FedEx did nothing to assuage the customers’ unhappiness. During early trading on Friday, the company’s stock fell as much as 3.9%, reaching a price that is more than two years below its previous low point. As of the end of trading on Thursday, they had lost forty percent this year, but shares of UPS had fallen twenty-two percent.

“We remain suspicious about (FedEx’s) scope and pace of cutbacks against a softening demand environment,” BofA Global Research analyst Ken Hoexter wrote in a note. “This is paired with its European Express service concerns… as well as ongoing FedEx Ground contractor conflicts.”

Featured Image: DepositPhotos © BIG_TAU

Please See Disclaimer

About the author: Valerie Ablang is a freelance writer with a background in scientific research and an interest in stock market analysis. She previously worked as an article writer for various industrial niches. Aside from being a writer, she is also a professional chemist, wife, and mother to her son. She loves to spend her free time watching movies and learning creative design.