FedEx bites the bullet with Q2 profit down with loss of Amazon
FEDEX is looking to retire air cargo capacity in the wake of a decrease in its fiscal second quarter operating performance after losing Amazon business on the ground and in the air
FEDEX is looking to retire air cargo capacity in the wake of a decrease in its fiscal second quarter operating performance after losing Amazon business on the ground and in the air.
The express giant saw its revenues for the quarter ended November 30 decline by 2.8 per cent year on year to US$17.3 billion while net income was down 48 per cent to US$560 million.
As a result, the company has severed its earnings guidance for the year, reported London's Air Cargo News.
It blamed the performance on: 'Weak global economic conditions, increased FedEx Ground costs from expanded service offerings, the loss of business from a large customer [Amazon], a continuing mix shift to lower-yielding services and a more competitive pricing environment.
'In addition, the later timing of the Thanksgiving holiday resulted in the shifting of Cyber Week into December, which negatively impacted the quarter's results.'
FedEx Express recorded asset impairment charges of $66 million related to the permanent retirement of ten Airbus A310-300 aircraft and 12 related engines. It will retire another 29 aircraft over the next 30 months.
During the remainder of fiscal 2020, FedEx Express will make further network capacity changes by reducing flight hours by around eight per cent, it said.
'The company continues to evaluate if additional aircraft retirements are warranted,' the company said.
FedEx Corp chief executive Fred Smith said: 'We have significantly enhanced our e-commerce capabilities with strategic initiatives including year-round seven-day FedEx Ground delivery, enhanced large package capabilities and the insourcing of FedEx SmartPost packages.
'These changes have been well-received by the marketplace as reflected in our record volumes this peak season.
'While we have experienced some higher-than-expected expenses this quarter, we forecast FedEx Ground operating margins to rebound to the teens in our fiscal fourth quarter as the bow wave of costs for these changes is absorbed.'
FedEx Corp chief operating officer Rajesh Subramaniam added: 'We are also taking immediate actions to address the short-term challenges facing our business, including eliminating multiple international flights to reflect reduced global air freight demand.
'These actions combined with benefits from the TNT integration should allow FedEx Express to enter fiscal 2021 with profit improvement underway.'