FedEx Corp. posted fiscal 2023 second-quarter results late Tuesday that demonstrated its ability to quickly slash costs but also confirmed the damage a slowdown in demand is inflicting on its top line.

FedEx (NYSE: FDX) reported adjusted diluted earnings per share of $3.18, coming in above consensus estimates of $2.77. However, revenue came in about $900 million light at $22.8 billion and below the $23.5 billion revenue level in its fiscal 2022 second quarter.

Adjusted operating income came in at $1.21 billion, down from $1.68 billion in the year-earlier quarter. Operating margin fell markedly to 5.3% from 7.1%. Net income dropped to $815 million from $1.3 billion.

FedEx said it identified an additional $1 billion in cost savings following a September announcement that it would shave $2.7 billion in expenses in the current fiscal year. As a result, the company expects to cut $3.7 billion in costs for the fiscal year. It also said it would cut capital spending for the fiscal year by $400 million to $5.9 billion.

In early trading after markets closed, shares were up 3%. Shares traded down Tuesday by 2.62%. FedEx shares are down more than 33% over the past 12 months.

As expected, most of the revenue weakness came from FedEx Express, the company’s air and international unit. Operating income at the unit dropped 64% year over year (y/y) due to lower global volumes. Yield per-package rose 8% y/y. 

FedEx telegraphed pronounced weakness in international airfreight activity, especially out of Asia, when it shocked investors and the transportation community in mid-September by pre-announcing substantially weaker-than-expected fiscal first-quarter results and withdrawing financial guidance for the rest of the fiscal year. 

FedEx Express’ operating income plummeted to $186 million from $660 million in the fiscal 2022 first quarter. Company executives said at the time they don’t expect much of a rebound for the balance of the fiscal year.

In the second quarter, FedEx Ground, FedEx’s U.S. ground-delivery unit, posted a 24% year-on-year gain in operating income, primarily due to a 13% increase in package yields and cost-reduction actions. These factors were partially offset by increased purchased transportation rates, lower package volume and other higher operating expenses.

FedEx Freight, the company’s less-than-truckload unit, posted a 32% year-on-year gain in operating income due largely to an 18% increase in shipment yields. The gains were partially offset by wage increases and a decline in shipments. 

FedEx Freight has temporarily furloughed an undetermined number of drivers until early March to bring capacity and costs in line with lower demand.

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