Categories Analysis, Industrials

Important takeaways from FedEx Corporation’s (FDX) Q4 2024 earnings report

The company targets $5.2 billion of capital spending for fiscal 2025, and earnings between $20.00 per share and $22.00 per share

FedEx Corporation (NYSE: FDX) this week reported better-than-expected fourth-quarter numbers and raised its FY25 earnings guidance, triggering a stock rally that drove up FDX to a three-year high. Reflecting the company’s extensive restructuring program and effective execution of its cost-reduction initiative called DRIVE, there has been a significant improvement in profitability lately.  

The stock jumped about 15% in Tuesday’s extended trading after the cargo giant impressed investors with positive Q4 results and bullish guidance for fiscal 2025. It is one of the biggest single-day gains in the company’s history.  FedEx has a good track record of hiking its dividend and currently has a yield of 4.6%, which is sharply above the S&P 500 average. Continuing its efforts to create shareholder value, the company plans to repurchase $2.5 billion of its common shares in fiscal 2025 and raise the annual dividend by 10%.

Q4 Results Beat

For the three months ended May 2024, FedEx reported a modest increase in revenues to about $22 billion — growth in the Ground and Freight segments was partially offset by weak performance by the core Express division. Revenue beat the Steet view by a small margin, reversing the recent trend. Fourth-quarter profit, adjusted for special items, advanced 10% annually to $5.41 per share. The bottom line benefited from continued moderation in operating expenses. Earnings surpassed the market’s projections, as they did in the trailing three quarters.

The management said it conducted an assessment of the role of the Freight business in the company’s portfolio structure and explored steps to unlock shareholder value. The statement hinted at a potential separation of the less-than-truckload division, adding to the positive investor sentiment. For the near term, the focus of the ongoing organizational restructuring remains cost-saving, and the company looks on track to achieve its $4 billion cost-saving target for FY25, compared to the FY23 baseline. In the fourth quarter, capital spending declined about 30% year-over-year.

Cost Saving

In fiscal 2025, permanent cost reductions from the DRIVE transformation program are expected to be $2.2 billion. The leadership sees a low-to-mid single-digit percent revenue growth in FY25. The guidance for full-year earnings per share, excluding one-off items, has been raised to the range of $20.00 to $22.00, the mid-point of which is slightly above analysts’ consensus estimates. The capital spending target for the year is $5.2 billion, which represents a double-digit reduction from the 2023 level. Last year, FedEx revealed plans to consolidate Express, Ground, Services, and others into a unified Federal Express Corporation.

“Primary factors that will ultimately determine our revenue growth are the rate of yield expansion, the pace of global industrial production, and growth of domestic e-commerce. We expect FY ’25 yields to benefit from both improved base rates and increased fuel surcharges. And, consistent with what we have seen over the past year, we’re anticipating a pricing environment that is competitive but rational. On the expense side, we remain committed to aggressively managing our cost structure, including the incremental $2.2 billion benefit tied to DRIVE,” FedEx’s CFO John Dietrich said at the Q4 earnings call.

On Wednesday, FedEx’s stock opened at the highest level since mid-2021 and traded sharply higher in the early hours of the session.

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