Consumer Purchases to ‘Continue Tilting’ to Services From Goods: FedEx

FedEx anticipates consumers “will keep spending” in the rest of calendar 2022, but that their purchases “will continue tilting toward services from goods,” said Chief Customer Officer Brie Carere on an earnings call Thursday for fiscal 2022's Q4 ended May 31. Despite the “increasingly challenging global backdrop,” FedEx finished the year with its highest-ever annual revenue of $93.5 billion, up 11% year over year, said CEO Raj Subramaniam on the call, his first since being named chief executive in March.

The company expects more consumers “to return to stores” in the months to come, said Carere. Against that “backdrop,” she said, “we do expect pressure” on business-to-consumer e-commerce volumes, she said. Though industrial activity in May was “solid,” Thursday’s S&P “flash” report for June signaled the weakest upturn in U.S. private sector output since January’s omicron-induced slowdown, she said. Following a strong retail inventory “build” late in fiscal 2022 and early in fiscal 2023, “inventory restocking is slowing,” she said. “This will dampen freight demand.”

The FedEx international businesses “continue to navigate a dynamic environment,” said Carere. “Global trade growth has slowed from disruptions related to lockdowns in China and the conflict in Ukraine, limiting the flow of goods and reducing international export volumes,” she said. “We do anticipate supply chain disruptions throughout the fiscal year.”

FedEx continues to expect passenger airlines to “fully recover to pre-COVID levels,” but that recovery will still “take some time,” said Carere. “Belly” freight capacity on passenger airlines “is expected to remain constrained” in fiscal 2023, she said. The Europe-to-Asia air travel “lane” is expected to recover to pre-COVID-19 pandemic levels but not until Q1 of calendar 2024, she said. Belly capacity on trans-Pacific airlines is estimated to recover in Q3 of calendar 2024, she said.

Fiscal 2022 was “quite challenging,” as FedEx built out its networks and expanded its e-commerce “portfolio,” said Subramaniam. “Then we had the labor challenges that were quite unexpected,” he said.

FedEx took a $1.4 billion financial hit for the year from the “inefficiencies” that resulted from not having enough “frontline” workers where they were needed, said Subramaniam. At the peak of the labor crisis, FedEx Ground had to reroute 600,000 packages a day because some of its hubs had only 65% of the staffing required to handle their normal volume, then-Chief Operating Officer Subramaniam said on an earnings call in September (see 2109220023).

Customers see FedEx as “essentially a critical infrastructure for e-commerce,” said Subramaniam. “We are doing a lot of things to make sure that we improve our productivity through technology initiatives that will launch in this fiscal year.” The stock closed 6.3% higher Friday at $243.24.