FedEx Stock Slides as Deutsche Bank Expresses Skepticism on Cost-Cutting Initiative

FedEx stock $148.71 as of 01:28 PM EDT.

FedEx stock (NYSE:FDX) rose ahead of Thursday’s closure as the firm highlighted cost-saving measures to protect it from inflationary pressures. In the results report, which was mistakenly issued before Thursday’s closing, CEO Raj Subramaniam emphasized cost-cutting measures expected to save the corporation between $2.2 billion and $2.7 billion during the whole fiscal year. 

In the first year, savings of about $1 billion are expected, but deeper cost reductions will accelerate as the fiscal year draws to a close. In the first year, savings of about $1 billion are expected, but deeper cost reductions will accelerate as the fiscal year draws to a close. Amit Mehrotra, an analyst with Deutsche Bank, warned clients that the steps might not be enough to signal an inflection point for FedEx stock.

“The announcement includes significant cost savings statistics, which, although remarkable on a headline basis, is likely not nearly enough in the environment of high inflation and diminishing volumes,” he said. According to Mehrotra, the cost savings are not being taken into account in light of both ongoing inflation and concurrently sharp income decreases. As a result, even a slight increase in inflation from current levels could make the steps irrelevant.

“To be sure, this is precisely what FDX needs to do in our opinion, but we don’t see a net positive effect on profitability from these cost moves in the context of inflation and volume decreases,” he said in his conclusion.

Outlook for FedEx Stock in the Q4

The Memphis-based transportation behemoth reported $3.44 in earnings per share and $23.2 billion in revenue for the final quarter of its fiscal year. The company had already foreshadowed the poor results for the quarter, citing “global volume contraction” and a more challenging macro backdrop as obstacles. It was also acknowledged that “service issues at FedEx Express” contributed to a stock decrease of almost 25% between the preliminary results report and the actual earnings report. On Thursday, the company provided more information, explaining that a 69% drop in FedEx Express operating profits from the previous year was caused by an 11% drop in global package and freight volume.

However, Mehrotra kept his “Buy” recommendation for the company.

Read the transcript of the earnings calls here. 

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