Edited & Reviewed by: Taranjit Singh
Amidst a challenging business landscape, FedEx refines earnings expectations and improves Express unit's operating margin, as shares soar on the back of cost-cutting efforts and buybacks
On Thursday, FedEx Corporation announced a more focused range for fiscal 2024 profits, raising the lower and narrowing the upper boundary, as a result of the company's cost-cutting achievements and repurchasing shares. Ahead of Friday's trading session, the announcement drove FedEx's share prices up by around 13% following the positive market reaction.
As FedEx's largest customer, the US Postal Service decreases its demand, the company reacts by tightening its belt with cost reduction strategies, including parking aircraft, decreasing flight hours, and operating fewer, fuller planes. The measures, which aim to cut down costs and boost profitability, saw the Express unit's operating margin climb 1.3% to 12.8% from the 11.5% recorded in the same quarter of the previous year.
FedEx adjusted its earnings per share range for fiscal 2024, now set between $17.25 and $18.25 – narrowing down from the previous $17 to $18.50. The company's adjustment for the quarter ended February 29 reflects a $966 million income, amounting to $3.86 per share, with buybacks contributing 9 cents to the earnings beat of 41 cents per share.
In addition to the profit adjustment, FedEx reported revenue of $21.7 billion for the quarter ending February 29, which represents a slight decline compared to the same quarter last year, when it reported $22.2 billion. The company's Express unit faced hurdles due to falling volume as the USPS shifted packages from higher-margin air services to more cost-efficient ground services.
In the coming days or weeks, FedEx expects news on its contract renewal with USPS, with FedEx Chief Customer Officer Brie Carere updating analysts on the company's quarterly performance call. The contract renewal is crucial for FedEx, as the USPS accounted for 11% of the company's revenue in the last fiscal year.
FedEx's cost-cutting efforts include parking aircraft, reducing flight hours, and flying fewer, fuller planes, which are expected to reduce its cost base. The company is also looking to save money by permanently grounding planes earlier than planned. These strategic moves, combined with the company's share buybacks, have contributed to the positive market reaction and the surge in FedEx's share prices.
In summary, FedEx's narrowed profit forecast for fiscal 2024 reflects the company's successful cost-cutting measures and strategic share buybacks. The company's efforts to streamline operations and improve profitability have resulted in a higher operating margin for the Express unit, despite a slight decline in revenue. FedEx's share prices have responded positively to the news, with a 13% surge in pre-market trading on Friday. The company's contract renewal with the USPS is expected to be a significant factor in the coming weeks, as FedEx continues to navigate a challenging business landscape.