Results Miss
Adjusted earnings, excluding special items, decreased to $3.60 per share in the first quarter from $4.55 per share in the year-ago period. Unadjusted profit came in at $0.79 billion or $3.21 per share in the August quarter, compared to $1.08 billion or $4.23 per share in the same period last year. The bottom-line performance was negatively impacted by a decline in revenues to $21.60 billion from $21.70 billion a year earlier. Both numbers missed Wall Street’s projections. It is worth noting that Q1 is a seasonally weaker quarter for the company.
Federal Express, the core air delivery business that accounts for more than 85% of total revenues, delivered an operating margin of 5.2%, which is below estimates. During the quarter, business-to-business volumes were impacted by general weakness in the industrial economy.
“Looking ahead, we expect our quarterly DRIVE cost reductions to build quarter over quarter throughout the year. Within our surface operations, we’ll keep focusing on the end-to-end efficiency initiatives, including optimizing our rental fleet and maximizing rail usage. In the air network and international category, a majority of our savings in the remainder of the year will come from Europe. While we realized some Europe savings in the quarter, most of our Europe-related DRIVE savings was skewed toward the second half of FY ’25 as we achieved efficiency and productivity improvements across the region,” FedEx’s CEO Raj Subramanium said at the Q1 earnings call.
Guidance
Taking a cue from the weak start to the year, FedEx management lowered its earnings and revenue guidance for fiscal 2025. It now expects full-year revenue to increase at a low-single-digit rate year-over-year, compared to the previous forecast for low-to-mid single-digit growth. The revised EPS guidance, on an adjusted basis, is $20-21, compared to the earlier forecast of $20-22. Unadjusted profit is expected to be in the range of $17.90 per share to $18.90 per share.
In the long term, the bottom line is expected to get a boost from the continued execution of structural cost reductions under the company’s DRIVE initiative. Meanwhile, significant progress has been achieved in the network optimization program.
Shares of FedEx traded down a dismal 13% in the early hours of Friday’s session, continuing the downtrend that followed the earnings announcement.