FedEx is planning to cut an additional $1 billion in costs, citing weak demand that led to a disappointing profit for Q2 2023, which ended Nov. 30. Most of the cuts are expected to impact the Express unit through measures including fewer flights. The reductions will add to cost-cutting measures announced in September to bring FedEx’s total fiscal savings plan for 2023 to $3.7 billion.
FedEx had expected revenue of $23.7 billion for the quarter but only brought in $22.8 billion. Net income fell to $788 million for the quarter, down from $1 billion a year earlier. The Express unit was the weakest part of the company, with operating income down 64% from last year. In comparison, FedEx Ground operating income rose 24% from last year and FedEx freight operating income increased 32% year-over-year.
Cost-cutting measures have resulted in a 6% drop in U.S. domestic flights and a 7% decline in international flights for FedEx so far in fiscal 2023. The company expects to park 11 additional aircraft by the end of the fiscal year.
“Our teams have an unwavering focus on rapidly implementing cost savings to improve profitability,” said Mike Lenz, CFO of FedEx in a statement. “As we look to the second half of our fiscal year, we are accelerating our progress on cost actions, helping to offset continued global volume softness.”
The reduction in transportation reflects reduced spending from U.S. consumers — discretionary spending confidence fell from 29% in 2021 to 24% in 2022, according to data from Deloitte. Economic uncertainty is affecting shoppers across the income spectrum, which could be causing a slowdown in overall purchases.
“Four out of 10 Americans say that their financial situation has worsened in the past 12 months,” said Steve Rogers, Managing Director at Deloitte in an interview with Retail TouchPoints. “That’s the highest level we’ve recorded since 2011. It’s not limited, and this is the interesting part, to lower income Americans. It’s across the income spectrum. We’re seeing it in the middle class, and we’re even seeing it in one in three respondents in the higher income class.”
For a deeper dive into what the economy has in store for shoppers and retailers, look for Retail TouchPoint’s upcoming feature on Deloitte’s findings.