FedEx's 2025 fiscal year profit outlook is positive, thanks to cost cutting, with a post-market surge of 17% | Financial Report Insights
FedEx's fourth-quarter performance exceeded expectations, with the anticipated cost reductions driving continued growth momentum into the next year. Both revenue and profit growth are expected to surpass market forecasts, with the after-hours stock price approaching a three-year high. It is projected that in the 2025 fiscal year, costs will be permanently reduced by $2.2 billion, with capital expenditures expected to remain flat compared to the previous year at $5.2 billion and lower than expected. Investments will be made in the modernization and automation of the fleet and facilities, while evaluating the freight business within the investment portfolio structure
After the U.S. stock market closed on Tuesday, the freight giant FedEx, which is considered a barometer of the U.S. economy, released its performance for the fourth quarter of the 2024 fiscal year ending in May, with revenue, adjusted EPS, and 2025 fiscal year profit outlook all exceeding expectations, causing the stock to surge by 17% after hours.
This pushed FedEx's stock price close to the $300 mark, and if the upward trend continues to the opening of the next day, it will hit a three-year high.
Its competitor UPS also saw a 2.5% increase in stock price after hours. FedEx closed flat on Tuesday, hovering near a five-week high, but its stock price has fallen by 11% over the past three months, with a slight increase of 1.3% for the year, far behind the S&P 500 index's gain of over 14%.
According to the financial report, FedEx's revenue for the fourth quarter was $22.1 billion, a slight increase of 0.9% from the same period last year's $21.9 billion, and slightly better than analysts' expected $22.06 billion.
The company reported a profit of $1.47 billion in the fourth quarter, with earnings per share of $5.94, a decrease of over 1% from the profit of $1.54 billion or earnings per share of $6.05 in the same period last year, but adjusted earnings per share were $5.41, higher than analysts' expected $5.34.
The after-hours stock price was mainly boosted by the profit outlook for the 2025 fiscal year ending in May next year, thanks to efforts to significantly reduce costs, the company also expects to repurchase $2.5 billion worth of shares to reward shareholders in the 2025 fiscal year.
FedEx expects earnings per share for the 2025 fiscal year, before accounting adjustments for retirement plans, to be between $18.25 and $20.25, and after deducting costs related to business optimization plans, earnings per share will be between $20 and $22, with the midpoint slightly higher than Wall Street's expected $20.92. The company also stated that revenue for the 2025 fiscal year is expected to increase by "low to mid-single-digit percentages" year-on-year, with the market expecting revenue to increase by about 3.2%.
Some analysts believe that although the global slowdown in parcel shipping demand still poses a challenge to the revenue of freight and express delivery giants, FedEx's cost reduction initiatives will lead to continued profit margin growth. The revenue growth rate forecasted for the 2025 fiscal year by the company is also surprising.
Company executives expect that the positive momentum will continue into the 2025 fiscal year, with FedEx intensifying efforts to build the world's most flexible, efficient, and intelligent network:
"In the fiscal year ending in May 2024, we reduced structural costs by nearly $1.8 billion. The ongoing cost reduction plan will permanently reduce costs by $2.2 billion in the 2025 fiscal year, with capital expenditures reaching $5.2 billion in the 2025 fiscal year. Investments will be prioritized for internal network optimization and efficiency improvements, including the modernization and automation of fleets and facilities." "
Analysts originally expected capital expenditures for the 2025 fiscal year to be $5.55 billion, but FedEx's outlook is that capital expenditures for the 2025 fiscal year will remain flat at $5.2 billion, compared to $6.2 billion in the 2023 fiscal year, representing a 16% decline in 2024.
Two weeks ago, there was news that FedEx plans to cut 1,700 to 2,000 back-office and business team positions in Europe starting in 2027, saving up to $175 million in costs annually.
The financial report also shows that FedEx's underperforming contract with the United States Postal Service (USPS) will end in September this year, bringing FedEx approximately $1.75 billion in revenue by the end of the fiscal year ending May 2023.
Furthermore, due to USPS shifting packages from higher-margin air services to more economical ground transportation services, FedEx's largest overnight delivery department has been struggling to cope with the decline in business volume.
Some analysis also points out that despite a positive outlook for the 2025 fiscal year, FedEx still faces challenges in terms of revenue. With inflation and interest rates remaining high, its two key business drivers - industrial production and parcel transport demand - have shown weakness.
FedEx also stated that the company is evaluating the role of freight services in its investment portfolio structure. Overall, in the fourth quarter, the performance of its ground business benefited from cost reductions and growth in ground commercial volume, while the freight business enjoyed "effective cost management." The decline in revenue from the Express business was due to a decrease in international business profitability, but cost reductions and an increase in domestic parcel profitability in the United States partially offset this impact.
In addition, the fourth-quarter performance includes a non-cash impairment charge of $157 million, as FedEx continues to modernize its fleet by deciding to retire 22 Boeing aircraft and 7 related engines.
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