FedEx delivers, for now

A Federal Express truck is shown in Los Angeles, California
A Federal Express truck is shown in Los Angeles, California, U.S., October 16, 2019.

TORONTO, March 17 (Reuters Breakingviews) - FedEx (FDX.N) is delivering a timely package to investors. Shares in the delivery company shot up over 10% on Friday morning, after it reported third-quarter results the day earlier, despite a 6% dip in revenue. For now Chief Executive Raj Subramaniam’s cost-cutting drive, which includes more than $4 billion in annualized cost reductions by the end of fiscal 2025, is enough. Cracks suggest that slicing expenses won't be a permanent fix.

FedEx is expecting to cut its U.S. headcount by some 25,000 year-over-year, by the end of this fiscal year. This puts the $56 billion company in a much better spot than it otherwise might be. The trouble is that as wallets tighten, people demand less immediacy for their deliveries. Revenue in the Express division, which offers an option for same-day delivery, fell 8% to $10.3 billion compared to the same quarter last year, the largest decline of all segments.

This division is also the largest by revenue, but it benefits greatly from scale. Operating margins dropped in the quarter to 1% from 4.6% as sales fell. Despite the fact that revenue fell in both the Freight and Ground divisions, those groups' operating margins grew. It suggests that the cost-cutting drive doesn't help when packages need to whip around the world quickly. Though shareholders were pleasantly surprised this quarter, it may get harder for Subramaniam to continue to deliver. (By Sharon Lam)

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Editing by Lauren Silva Laughlin and Amanda Gomez

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