Is FedEx a “canary in a coal mine”?

Sep 29, 2022 | Corporate Insights, No Bull Economics

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•As a bellwether for the domestic & global economy, FedEx provides key insights into shipping volumes. The company recently sent a scare throughout Wall Street by reporting FY1Q23 financial weakness attributed to the economy (although criticism of its management strength is also notable). 

•Corporate reported that its fiscal 1Q23 (ending 8/31/22) financial results were adversely impacted by global volume softness that accelerated in the final weeks of the quarter due to weakening economic conditions. Fuel surcharge increases & a +5.9% pricing increase more than offset the volume decline, driving a +6% sales increase. All-the-same, weak fundamentals drove a -1.5% y/y decline in its adjusted operating margin.

•Operating income for its FedEx Express unit declined -69% y/y, driven by an -11% y/y reduction in global package & freight volume which reflected: Chinese lockdowns; post-Ukraine European challenges (recession looks likely); and efforts of companies to understandably shorten their supply chains. Corporate seeks to cut $1.5B – $1.7B in costs from this unit during FY23 by cutting global flight hours. 

•During FY1Q23, real retail sales (including auto) declined -3.1% y/y through July 2022 (after growing +4.6% & +10.8% in FY21 & FY22, respectively), “pacing to have the worst decline since The Great Recession”. Corporate plans to close 100 retail locations & pause hiring until the economic uncertainty clears up.

•Conversely, its ground transportation business has rebounded to pre-pandemic levels, driven almost exclusively by e-commerce (as opposed to B2B).

FedEx Financials Chart

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