By Lisa Baertlein and Anant Agarwal
(Reuters) – FedEx on Tuesday forecast fiscal 2025 profit above analysts' estimates, and shares of the delivery giant jumped as executives said cutting expenses and consolidating operations would boost returns even as demand remains weak for package delivery.
Shares of FedEx, the Memphis-based company, jumped 14% in extended trading after it targeted fiscal 2025 earnings of $20 to $22 per share — the midpoint of which was slightly above analysts' estimates of $20.92. The company is also considering whether it will keep or sell its freight trucking business, which generated $2.3 billion in revenue in the latest quarter.
The news helped ease investor concerns that trends that drove FedEx shares up 10% last year were slowing down.
FedEx's revenue (excluding merchandise) rose 7.2% to $1.34 billion, or $5.41 per share, in the fourth quarter ended May 31. Operating margin also expanded to 8.5% from 8.1% in the year-ago quarter.
“These results are unprecedented in the current environment,” FedEx CEO Raj Subramaniam said. “We expect this momentum to continue in fiscal 2025.”
The company's largest unit, express overnight delivery, is struggling with falling volumes as the U.S. Postal Service shifts packages from higher-margin air services to more economical ground services. FedEx's unprofitable U.S. Postal Service contract, which brought FedEx about $1.75 billion in revenue during the Postal Service's latest fiscal year, will expire on Sept. 29.
Express operating margin, excluding items, fell to 4.1% during the quarter from 5.0% a year ago.
FedEx previously said that eliminating costs related to supporting Postal Service volumes would help improve profitability in fiscal 2025 and beyond.
“FedEx's guidance was impressive, considering it did not renew its contract with the U.S. Postal Service,” said Louis Navellier, founder and chief investment officer of asset manager Navellier & Associates. Navellier holds FedEx shares in one of his funds.
CEO Subramaniam, who replaced founder Fred Smith two years ago, has been working to reduce costs and merge separate airplane- and truck-based delivery units amid pressure from activist investors.
But the revenue side of its business remains challenging. Industrial production and demand for parcel shipping — two key business drivers — are sluggish due to inflation and high interest rates.
FedEx's revenue in the fourth quarter reached $22.1 billion, up 1% from a year earlier and slightly above analysts' estimates of $22.06 billion.
Shares of FedEx rose 14.2% to $292.83 in after-hours trading, while shares of rival United Postal Service also rose 2.4% to $137.56. (This story has been refiled to add 'percent' symbol removed in paragraph 2)
(Reporting by Anant Agarwal in Bengaluru and Lisa Baertlein in Los Angeles; Editing by David Gregorio; Editing by Pooja Desai and Matthew Lewis)