FedEx Labor Shortfall Slices Quarterly Profit

US delivery firm FedEx Corp. posted a 7% drop in quarterly profit and cut its full-year forecast on Tuesday, after labor shortages crimped earnings, slowed packages and drove up costs ahead of the all-important holiday peak season, Lisa Baertlein reported for Reuters.

Photo Insert: A parked FedEx truck in front of midtown Manhattan office

Shares in the Memphis, Tennessee-based company fell 4.6% to $240.50 in extended trading after FedEx said staffing problems resulted in a $450 million year-over-year increase in costs due to higher wage rates and overtime, increased spending on third-party transportation services, and shipping hiccups.

"The impact of constrained labor markets remains the biggest issue facing our business" and was a key driver for the first-quarter underperformance, FedEx Chief Operating Officer Raj Subramaniam said on a conference call with analysts.

FedEx said adjusted net income fell to $1.19 billion, or $4.37 per share, for the fiscal first quarter ended Aug. 31, from $1.28 billion, or $4.87 per share, a year earlier. Revenue increased 14% to $22.0 billion.

On the heels of the report, FedEx lowered its full-year forecast for earnings, excluding items, to $19.75 to $21.00 per share. FedEx previously forecast 2022 earnings per share, excluding items, of $20.50 to $21.50.

Most of the excess labor expense hit the company's Ground network - which is now rerouting 600,000 packages a day, or 6.4% of the segment's average daily volume during the quarter - to work around woes stemming from the labor shortfall, executives said.

As an example, Subramaniam said its hub in Portland, Oregon, is just 65% staffed. Its rival, United Parcel Service (UPS), is heavily unionized and its workers are among the highest-paid in the industry.

Shares in UPS shed 2.6% after the FedEx report. At the market close on Tuesday, shares in FedEx were down 10% over the past six months, while UPS shares gained 19%.

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