Sept 23 (Reuters) - FedEx Corp's new chief executive (FDX.N) must show he can play catch up on costs without further eroding service, Wall Street analysts said on Friday, after the global delivery company laid out plans to slash up to $2.7 billion in expenses for fiscal 2023.
FedEx's plan announced on Thursday escalates pressure on CEO Raj Subramaniam to address internal missteps and adjust to a darkening global economy that hammered the company's fiscal first-quarter profits.
Some analysts said they are no longer giving the CEO - who succeeded FedEx founder Fred Smith in June - the benefit of the doubt.
"This is 1) now a "show me" story, and 2) management must be careful not to cut so deep as to affect already sub-optimal post-pandemic service levels," Stifel analysts wrote in a client note.
The delivery industry is grappling with the prospect of profit-sapping excess capacity as the pandemic shipping bubble deflates.
But FedEx has its own woes. Its structure, with separately operated Express, Ground and Freight units, creates cost redundancies that are difficult to wring out.
The integration of its multi-billion dollar TNT Express acquisition in Europe has been so troubled that one analyst dubbed it an "unmitigated disaster". And, Subramaniam raised the temperature on simmering unrest in FedEx's U.S. Ground delivery contractor network by dubbing it "much more of a perception issue than reality."
Barclays analyst Brandon Oglenski bluntly summarized the investor and analyst exasperation during Thursday's call with management.
"Your asset efficiency is literally half that of your nearest competitor, which is unionized, if I might add," he said, referring to UPS.
FedEx's action plan and comments did little to quell the discontent. The company's shares dropped as much as 3.9% to a more than two-year low of $148.50 in early Friday trade. They had shed 40% year to date as of Thursday's close, compared with a 22% drop in shares of UPS.
"We remain skeptical on (FedEx's) scale and pace of cuts into a softening demand backdrop, coupled with its European Express service issues ... as well as ongoing FedEx Ground contractor disputes," BofA Global Research analyst Ken Hoexter said in a note.
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