Delivering dividends… and some packages. FedEx sales soared last year as the online shopping boom stuck post-lockdown. But since then shipping volumes have slipped as you buy that bathing suit IRL. Now FedEx faces a double whammy of rising gas and labor costs — plus stiff competition from UPS and Amazon. Yesterday, some good news landed on investors’ doorsteps:
- FedEx boosted quarterly dividend payouts to investors by 50% and added two board members. Shares surged 14% yesterday, their biggest one-day jump in 29 years.
- New direction: The surge is a sign investors believe FedEx’s new CEO (who started this month) can trim spending and prioritize returns.
- Case in box: FedEx has accelerated plans to buy back $5B of shares, and decelerated plans to upgrade its fleet.
Squeeze-onomics… FedEx started cost-slashing early this year to boost margins. It cut spending on customer perks (think: fewer package-tracking options) and trimmed labor costs (think: slower hiring) — months before companies started doing involuntary layoffs. But cost-cutting wasn’t the end of the profit push: FedEx also boosted earnings by charging customers extra during busy times and bumped its fuel surcharge for all services.
Cost-cutting is a double-edged sword… Done cleverly, it can make investors happy, but done too aggressively, it can frustrate customers and burden workers. FedEx’s slow-and-steady approach could help it satisfy investors during the market downturn while protecting its biz. But if companies cut too much too fast, they could have a hard time switching from “squeeze mode” back to “growth mode” when prices normalize.