By Lisa Baertlein and Priyamvada C
(Reuters) -FedEx Corp will slash an additional $1 billion in costs as recession threatens and the COVID-19 pandemic demand bubble deflates, the delivery company said on Tuesday.
Shares rose 3.7% to $170.48 in extended trading after Memphis, Tennessee-based FedEx (NYSE:FDX) also reported a bigger fiscal second-quarter profit than Wall street expected.
FedEx now plans to take out $3.7 billion in costs this year by parking planes, closing offices, stopping rural Sunday delivery and furloughing workers in its freight division.
While Wall Street cheered that effort to prop up profits, FedEx leaders are now under pressure to make good on their plans to shrink and streamline the company's bloated and redundant operating structure.
"Our experts were skeptical on the original" cost savings plan, said Anthony de Ruijter, analyst at Third Bridge. Another $1 billion in cuts "may be even more of a stretch," he said.
FedEx Chief Executive Raj Subramaniam said the company was still "navigating a weaker demand environment" and credited cost cutting for the stronger-than-expected profit for the quarter ended Nov. 30.
The global delivery company angered investors and analysts in September when it yanked its forecast, triggering the biggest one-day stock drop in company history.
Critics had previously called CEO Subramaniam's expense control efforts too little and too late.
In particular, they were concerned that FedEx has been underperforming rival United Parcel Service (NYSE:UPS) with its more costly unionized workforce.
When the stock market closed on Tuesday, shares of UPS were down 14% from a year ago, versus the 33% drop in FedEx stock.
FedEx warned in November that U.S. volume in the year-end quarter was below company projections as the pandemic-driven e-commerce bubble deflated.
On Tuesday, FedEx said second-quarter adjusted profit fell to $815 million, or $3.18 per share, from $1.3 billion, or $4.83 per share, a year earlier.
Per-share earnings beat analysts' estimates by 36 cents, according to Refinitiv I/B/E/S Estimates, while revenue came in at $22.8 billion - below analysts' target of $23.74 billion.
The company forecast 2023 earnings per share of $13 to $14, compared with analysts' average estimate of $14.08, according to Refinitiv IBES data.
Meanwhile, FedEx has been buying back shares to quell investor unrest. That boosted profit in the latest quarter by 6 cents per share. A new round of repurchases is slated for December.