FedEx, a global delivery services company, experienced a significant increase in its stock price following the release of its fiscal fourth-quarter results. The company’s earnings per share of $5.41 exceeded analysts’ expectations of $5.35, while its revenue of $22.11 billion surpassed the anticipated $22.07 billion.
During the three-month period ending on 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, in the previous year. Although revenue slightly increased from $21.9 billion to $22.1 billion, the full fiscal year revenue declined from $90.2 billion to $87.7 billion.
FedEx’s capital spending for fiscal 2024 amounted to $5.2 billion, marking a 16% decrease from the previous year’s $6.2 billion. This decline aligns with the company’s commitment to cutting costs by $4 billion by the end of fiscal 2025.
Looking ahead to fiscal 2025, FedEx anticipates low to mid-single-digit revenue growth driven by the growth of e-commerce and low-inventory levels. Brie Carere, FedEx’s Chief Customer Officer, expressed confidence in the e-commerce sector’s potential to outpace business-to-business growth both in the United States and globally.
As part of its cost-cutting measures, FedEx implemented the DRIVE transformation program in response to weak freight demand. The program aims to consolidate operations and reduce costs. CEO Raj Subramaniam confirmed that the company achieved its target of $1.8 billion in structural cost reductions in fiscal year ’24 and remains on track to reach the overall cost-cutting goal of $4 billion by fiscal 2025.
In April 2023, FedEx announced plans to consolidate its delivery companies Express, Ground, Services, and others into a unified Federal Express Corporation. This consolidation, scheduled to begin in June 2024, is expected to drive adjusted income and margin improvement in fiscal year 2025.
While FedEx focuses on its cost-cutting initiatives, it also acknowledges the need to address margin growth challenges in its largest segment, Express. The segment’s operating margin for fiscal 2024 increased slightly to 2.6% from 2.5% the previous year, but its fourth-quarter margins remained unchanged at 4.1%.
Investors are closely monitoring the performance of the Express segment, especially after FedEx lost its contract with the U.S. Postal Service to rival United Parcel Service (UPS). Starting September 30, UPS will become the primary air cargo provider for USPS, resulting in a $500 million headwind for FedEx in fiscal 2025.
Despite these challenges, FedEx remains optimistic about the future. The company expects a moderate improvement in the demand environment throughout the next fiscal year. Furthermore, FedEx recently raised its quarterly dividend by 10%, indicating its confidence in its ability to navigate the changing landscape of the delivery industry.
In summary, FedEx’s strong fiscal fourth-quarter results, exceeding expectations in both earnings and revenue, led to a significant increase in its stock price. The company’s focus on cost-cutting measures, consolidation efforts, and the growth potential of e-commerce contribute to its positive outlook for fiscal 2025. However, challenges in margin growth and the loss of the U.S. Postal Service contract to UPS pose potential headwinds for the company moving forward.
