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FedEx (FDX) Announces Restructuring of Segments to Save Costs
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FedEx Corporation’s (FDX - Free Report) management announced a plan to restructure its business segments into one unit, in line with the objective of reducing costs to the tune of $4 billion by 2025. Inflationary pressures and weak shipping demand have been hurting the company for quite some time. To navigate the weaker-than-expected business environment, FDX is cutting costs.
The transition will be implemented in a phased manner. The entire restructuring process is likely to be implemented in June 2024. Following the revamp, FedEx Express, FedEx Ground, FedEx Services, and other FedEx operating companies will come under a single umbrella — Federal Express Corporation. Federal Express Corporation will conduct all its operations under the FedEx brand.
FDX’s current CEO Raj Subramaniam will serve as president and CEO of the revamped organization. However, during the transition period (up to June 2024), the financial reporting segments will remain unchanged.
Management also outlined the cost-saving targets for its DRIVE Investor Event. The DRIVE initiatives are anticipated to result in the 2025 achievement of $4 billion cost savings. Per the plan, $1.2 billion savings are anticipated to be derived from Surface Network, $1.3 billion from Air Network & International, and the remaining $1.5 billion from General & Administrative cost cuts.
The DRIVE plan also facilitates the implementation of Network 2.0, under which $2 billion cost savings are likely to be achieved in fiscal 2027. Management expects to incur costs of up to $2 billion by the end of fiscal 2025 for implementing its business optimization programs, including the DRIVE and Network 2.0.
Copa Holdings is benefiting from the improvement in air-travel demand. In fourth-quarter 2022, passenger revenues increased 29.5%, owing to higher yields.
CPA’s focus on its cargo segment is encouraging too. In fourth-quarter 2022, cargo and mail revenues grew 69%, owing to higher cargo volumes and yields. Copa Holdings' fleet modernization and cost-management efforts are commendable.
The above-mentioned tailwinds are likely to continue aiding this Latin American carrier. The Zacks Consensus Estimate for current-year earnings has been revised 12.3% upward over the past 60 days.
American Airlines is seeing steady recovery in domestic air-travel demand. AAL has an expected earnings growth rate of more than 100% for the current year.
The Zacks Consensus Estimate for AAL’s current-year earnings has improved 19.6% over the past 60 days. AAL has surpassed the Zacks Consensus Estimate for earnings in three of the past four quarters and missed once. The average beat being 7.79%.
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FedEx (FDX) Announces Restructuring of Segments to Save Costs
FedEx Corporation’s (FDX - Free Report) management announced a plan to restructure its business segments into one unit, in line with the objective of reducing costs to the tune of $4 billion by 2025. Inflationary pressures and weak shipping demand have been hurting the company for quite some time. To navigate the weaker-than-expected business environment, FDX is cutting costs.
The transition will be implemented in a phased manner. The entire restructuring process is likely to be implemented in June 2024. Following the revamp, FedEx Express, FedEx Ground, FedEx Services, and other FedEx operating companies will come under a single umbrella — Federal Express Corporation. Federal Express Corporation will conduct all its operations under the FedEx brand.
FDX’s current CEO Raj Subramaniam will serve as president and CEO of the revamped organization. However, during the transition period (up to June 2024), the financial reporting segments will remain unchanged.
Management also outlined the cost-saving targets for its DRIVE Investor Event. The DRIVE initiatives are anticipated to result in the 2025 achievement of $4 billion cost savings. Per the plan, $1.2 billion savings are anticipated to be derived from Surface Network, $1.3 billion from Air Network & International, and the remaining $1.5 billion from General & Administrative cost cuts.
The DRIVE plan also facilitates the implementation of Network 2.0, under which $2 billion cost savings are likely to be achieved in fiscal 2027. Management expects to incur costs of up to $2 billion by the end of fiscal 2025 for implementing its business optimization programs, including the DRIVE and Network 2.0.
Zacks Rank & Other Picks
FedEx currently carries a Zacks Rank #2 (Buy). Investors interested in the Zacks Transportation sector may also consider stocks like Copa Holdings (CPA - Free Report) and American Airlines (AAL - Free Report) . CPA currently sports a Zacks Rank #1 (Strong Buy) and AAL carries a Zacks Rank # 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Copa Holdings is benefiting from the improvement in air-travel demand. In fourth-quarter 2022, passenger revenues increased 29.5%, owing to higher yields.
CPA’s focus on its cargo segment is encouraging too. In fourth-quarter 2022, cargo and mail revenues grew 69%, owing to higher cargo volumes and yields. Copa Holdings' fleet modernization and cost-management efforts are commendable.
The above-mentioned tailwinds are likely to continue aiding this Latin American carrier. The Zacks Consensus Estimate for current-year earnings has been revised 12.3% upward over the past 60 days.
American Airlines is seeing steady recovery in domestic air-travel demand. AAL has an expected earnings growth rate of more than 100% for the current year.
The Zacks Consensus Estimate for AAL’s current-year earnings has improved 19.6% over the past 60 days. AAL has surpassed the Zacks Consensus Estimate for earnings in three of the past four quarters and missed once. The average beat being 7.79%.