FedEx Raises Profit Forecast, Sees Cost Cuts Effective
An employee sorts packages on a conveyor belt at a FedEx facility. (Michael Nagle/Bloomberg News)
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Shares of FedEx Corp. jumped the most in nine months after the courier raised its profit forecasts, signaling that cost-cutting efforts are helping to counter declining parcel volumes.
Adjusted earnings for this fiscal year will be between $14.60 and $15.20 per share, up from a previous forecast of no more than $14, the Memphis, Tennessee-based company said. Analysts were expecting an average of $13.57, according to estimates compiled by Bloomberg.
“We continue to act with urgency to increase efficiency and our cost reduction efforts are becoming more effective, contributing to improved forecasts,” CEO Raj Subramaniam said in a March 16 statement. FedEx also reported third-quarter earnings that beat Wall Street’s expectations. .
Its shares rose 11% at 9:30 am on March 17 in New York, the biggest intraday gain since June 14. Shares are up 18% this year by the March 16 close, well ahead of the S&P 500.
The better-than-expected report prompted a number of share price target updates, including from analysts at TD Cowen, Citi and Susquehanna Financial. Cowen’s Helan Becker said in a note that FedEx “is well positioned to improve results in the second half of calendar year 2023 and into 2024.”
Subramaniam has been looking to cut costs and strengthen operations in response to declining parcel volume as people return to stores and spend more on services post-pandemic. He previously ordered savings of up to $3.7 billion from the original annual spending plan, including cutting 10% of senior management positions.
While the cuts have affected everyone, Express, the company’s largest division, has taken the brunt. The courier has cut flights and parked older planes as customers return more cargo back to ships after supply chain problems have eased. Volumes also fell in the ground division and FedEx Freight, the company’s transportation company.
Although demand has eased, FedEx has been able to maintain high prices, especially for ground shipping, and has announced an overall rate increase of 6.9% this year, the largest such increase in its history.
Third-quarter adjusted earnings were $3.41 per share, FedEx said, beating analysts’ average estimate of $2.71. Revenue was $22.2 billion, compared to analysts’ forecast of $22.7 billion.
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Operating income fell 77% to $119 million in the Express business as global volume declined. This was partly offset by a 3% increase in revenue per pack. The ground division saw an 11% increase in revenue per pack, which helped offset lower volumes. The division’s operating profit jumped 32% to $844 million in the quarter.
Freight also posted an 11 percent increase in revenue per shipment and a one-time gain on the sale of a facility. The division increased operating income by 15% to $386 million.
Overall, adjusted operating margin was 5.3%, lower than a year ago but 100 basis points above analysts’ expectations. The key factor was cost cutting.
“Our improved earnings forecasts demonstrate confidence in our ability to operate to cope with the ongoing global volume volatility that we face across the business,” Chief Financial Officer Michael Lentz said in a statement.
FedEx Corp. ranks #2 on the Transport Topics Top 100 Largest Rental Carriers in North America and the Transport Topics Top 50 Largest Trucking Companies in the World.
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