ii view: FedEx shares slump as speedy deliveries slow

First-quarter results to 31 August  

• Revenue of $21.6 billion, down from $21.7 billion a year ago
• Adjusted earnings down 21% to $3.60 per share
• Adjusted profit down 24% to $1.21 billion
• Quarterly dividend of $1.38 per share, unchanged from prior quarter

Guidance: 

• Now expects full-year low-single digit percentage revenue growth, down from a prior low-to-mid-single digit percentage increase
• Now expects full-year earnings of $20-21 per share, down from a previous $20-22 per share

Chief executive Raj Subramaniam, said:

“Despite a challenging quarter, we remain focused on transforming our network, improving our efficiency, lowering our cost-to-serve, and enhancing our ability to adapt with speed to evolving market dynamics.”

“Overall, I remain confident in the value-creation opportunities ahead as we focus on reducing our structural cost, growing revenue profitably, and leveraging the insights from our vast collection of data as we continue to build the world’s most flexible, efficient and intelligent network.”

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ii round-up:

FedEx Corp (NYSE:FDX) detailed earnings that missed Wall Street forecasts, with the global courier lowering its expected full-year sales estimate.

Reduced demand for more profitable priority fast services and increased costs dragged adjusted first-quarter earnings per share down 21% year-over-year to $3.60. That missed analyst forecasts of $4.75 per share. The Memphis headquartered company now expects annual revenue growth in the low-single digit percentage region, down from a prior low-to-mid-single digit percentage increase.

Shares in the S&P 500 company fell 15% in US trading having come into this latest news up by close to a fifth year to date. That’s similar to the S&P 500 index in 2024. Rival United Parcel Service Inc Class B (NYSE:UPS) has fallen by 16% in that time. 

FedEx ships around 15 million items every business day across a network of more than 200 countries. Revenue for the first quarter to late August fell to $21.6 billion from $21.7 billion in the year ago quarter.

Under its ‘Drive’ transformation programme, FedEx has been restructuring and cutting costs, merging divisions and closing operational facilities. 

Reduced structural costs under the programme during the quarter were partially countered by increased staff wages and heightened transportation rates. 

FedEx now expects full-year earnings of $20-21 per share, down from a previous $20-22 per share.

A $1 billion share buyback programme was completed during the quarter with cash held of $5.9 billion as of 31 August. A previously declared dividend of $1.38 per share remained unchanged from the prior quarter. 

Second-quarter results are scheduled for 19 December. 

ii view:

Started in 1973, FedEx today employs around 500,000 people across approximately 5,000 operating facilities. Almost 600 aircraft flying between its many hubs sit alongside around 200,000 vans and vehicles. The US remains its biggest market generating 72% of sales over its last fiscal year, with international operations the balance of 28%.  

For investors, economic challenges including high interest rates may be causing some corporate customers to send items on a cheaper if slower basis. Costs such as staff wages have risen. Many factors like increased fuel prices can hinder performance, while competition such as UPS is not standing still. 

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On the upside, management initiatives under its ‘Drive’ performance improvement plan continue to be rolled out. Diversity of both customer type and geographical region exist. Previous growth oriented acquisitions have included Dutch parcel delivery firm TNT Express in 2016, while a forecast dividend yield of close to 2% is not to be overlooked.  

For now, and despite clear ongoing risks and short-term problems, this giant of the transportation sector appears to remain worthy of consideration for a place in already diversified long-term focused investor portfolios. 

Positives: 

• Performance improvement plan
• Diverse customer base

Negatives:

• Uncertain economic outlook
• Volatile costs

The average rating of stock market analysts:

Buy