(Source – MSN)
FedEx shares jumped more than 15% after hours on Tuesday following the company’s fiscal fourth-quarter results, which surpassed analysts’ expectations in both earnings and revenue. According to a survey of analysts by LSEG, FedEx reported adjusted earnings per share of $5.41, beating the anticipated $5.35. The company’s revenue reached $22.11 billion, slightly above the expected $22.07 billion.
For the quarter ending May 31, FedEx reported a net income of $1.47 billion, or $5.94 per share, compared to $1.54 billion, or $6.05 per share, a year earlier. Revenue for the quarter rose to $22.1 billion, up from $21.9 billion the previous year. However, for the full fiscal year, revenue declined to $87.7 billion from $90.2 billion.
FedEx also reported that its capital spending for fiscal 2024 was $5.2 billion, a 16% decrease from $6.2 billion in fiscal 2023 and below the forecasted $5.7 billion.
Cost-Cutting and Future Projections
Looking ahead, FedEx expects low to mid-single-digit revenue growth for fiscal 2025, driven significantly by e-commerce and low inventory levels, according to Chief Customer Officer Brie Carere. “We think e-commerce is going to outpace the B2B growth,” Carere said. “We like the fundamentals from an e-commerce perspective that will help us here in the United States and around the world.”
The reduction in capital spending aligns with FedEx’s broader cost-cutting initiatives, as the company aims to cut $4 billion by the end of fiscal 2025. CEO Raj Subramaniam highlighted the success of the DRIVE transformation program, which has already achieved $1.8 billion in structural cost savings in fiscal year 2024. He also mentioned that the company is on track to meet its $4 billion cost-cutting goal, with an additional $2 billion expected from the consolidation of its air and ground services.
As part of the DRIVE initiative, FedEx announced in April 2023 that it would consolidate its delivery companies—Express, Ground, Services, and others—into a unified Federal Express Corporation, operating under the FedEx brand. This consolidation is expected to be completed by June 2024 and is anticipated to be a significant driver of adjusted income and margin improvement for fiscal year 2025, according to Chief Financial Officer John Dietrich.
Challenges and Strategic Adjustments
Despite these positive developments, FedEx faces some challenges. The company expects the demand environment to improve moderately through the next fiscal year. However, the Express segment, which has struggled with margin growth, remains a focal point. The segment’s margins were 4.1% in the fourth quarter, unchanged from the previous year, while the operating margin for fiscal 2024 was 2.6%, slightly up from 2.5% last year. Subramaniam emphasized that improving the performance of the Express segment is a “top priority” for the company.
Additionally, FedEx increased its quarterly dividend by 10% earlier this month, but investors remain cautious due to the loss of its U.S. Postal Service (USPS) contract to rival United Parcel Service (UPS). UPS will become the primary air cargo provider for USPS starting September 30, after FedEx’s contract expires. USPS was the largest customer for the Express segment, and the loss is expected to result in a $500 million headwind for fiscal 2025.
In summary, while FedEx has shown strong financial performance and strategic advancements, it continues to navigate significant challenges in its operating environment and competitive landscape.
