Earnings Preview: FedEx’s Q1 results likely to reflect organizational restructuring

FedEx Corporation (NYSE: FDX) is on the path to a major transformation, with its organizational structure undergoing sweeping changes to become a more flexible and efficient company. The cargo giant is aggressively implementing its network optimization program and flat-rate pricing strategy to achieve significant cost savings. Meanwhile, the company has completed the consolidation of the Express, Ground, and Services segments into Federal Express Corporation.

Stock

In the last couple of years, FedEx’s stock has witnessed a series of highs and lows but maintained an uptrend all along. It has gained a whopping 87% during that period. The shares have lost some momentum since last week, and the weakness continued ahead of next week’s earnings. A few weeks ago, the management raised the dividend by about 10%. Recent data show that the company’s cost-reduction efforts have started bearing fruit, which is good news for shareholders.

For the first quarter of 2025, market watchers project earnings of $4.87 per share, compared to $4.55 per share in the same period of fiscal 2024. The Q1 report is expected to come on Thursday, September 19, at 4:05 pm ET. First-quarter revenue is estimated to have edged up 1% from last year to $22.0 billion.

Cash Flow

Of late, there has been an improvement in FedEx’s return on invested capital, while higher free cash flow has helped it expand the share repurchase program. Recovering from a prolonged slowdown, revenues returned to growth in the most recent quarter, a trend that is expected to continue this year. The top line is benefiting from higher semiconductor shipments also, amid the widespread increase in chip demand.  

The ongoing cost-cutting efforts – under the company’s ambitious DRIVE program that includes the One FedEx and Network 2.0 initiatives – should translate into margin growth. DRIVE is a comprehensive program to improve long-term profitability, targeting to reduce about $4 billion in structural costs by fiscal 2025. The consolidation of operating segments was completed earlier this year.

Q4 Outcome

In the fourth quarter, adjusted earnings increased to $5.41 per share from $4.94 per share in the year-ago period. On a reported basis, net income was $1.47 billion or $5.94 per share in the May quarter, vs. $1.54 billion or $6.05 per share in the corresponding period of 2023. Total revenues rose modestly to $22.10 billion in Q4 from $21.93 billion last year. An increase in Ground and Freight revenues was partially offset by a double-digit fall in Services revenue.

From FedEx’s Q4 2024 earnings call:

“With the recent completion of the FY 2025 planning process, we have turned our focus to the next phase of our long-term stockholder value creation plans. As a part of this work, our management team and the Board of Directors, along with outside advisors, are conducting an assessment of the role of FedEx Freight in our portfolio structure and potential steps to further unlock sustainable shareholder value. We are committed to completing this review thoroughly and deliberately by the end of the calendar year.”

The 52-week average price of FedEx’s stock is $263.20. On Wednesday, it opened at $283.85 and mostly traded lower during the session.