By Lisa Baertlein and Ananta Agarwal
(Reuters) – FedEx (NYSE:) forecast fiscal 2025 profit above analyst estimates on Tuesday, and shares in the delivery giant soared as executives said cutting costs and consolidating operations would boost returns , even though demand for parcel delivery remained weak.
Shares of FedEx rose 14% in extended trading as the Memphis-based company targeted fiscal 2025 earnings of $20 to $22 per share – with the midpoint slightly above analysts’ estimate of $20.92. The company is also considering whether to keep or sell its trucking business, which generated $2.3 billion in revenue in the last quarter.
The news helped investors shake off concerns that the trends that drove a 10% rise in FedEx shares last year were waning.
FedEx’s earnings excluding items rose 7.2% to $1.34 billion, or $5.41 per share, for the fourth quarter ended May 31. Operating margin also improved to 8.5%, compared to 8.1% in the prior year quarter.
“These results are unprecedented under the current environment,” said Raj Subramaniam, CEO of FedEx. “We expect this momentum to continue into fiscal year 2025.”
The company’s largest division, Express overnight delivery, has suffered declining volumes as the US Postal Service shifts packages from higher-margin air services to more economical ground services. FedEx’s unprofitable U.S. Postal Service contract, which generated about $1.75 billion in revenue for FedEx during the Postal Service’s last fiscal year, expires on September 29.
Express’ operating margin, excluding items, fell to 4.1% during the quarter from 5.0% a year earlier.
FedEx previously said eliminating costs associated with supporting mail volume will help improve profitability in fiscal 2025 and beyond.
FedEx’s “guidance was impressive, in light of the fact that it did not renew its contract with the US Postal Service,” said Louis Navellier, founder and chief investment officer of asset manager Navellier & Associates, which holds FedEx shares in a fund .
CEO Subramaniam, who succeeded founder Fred Smith two years ago, has cut costs and combined its separate plane- and truck-based delivery units under pressure from activist investors.
But the revenue side of its business remains a challenge. Industrial production and demand for parcel shipping – two key drivers of business – are weak as inflation and higher interest rates take their toll.
FedEx’s fourth-quarter revenue was $22.1 billion, up 1% year-over-year and slightly above analyst estimates of $22.06 billion.
Shares of FedEx rose 14.2% to $292.83 in after-hours trading, while shares of rival United Postal Service also rose 2.4% to $137.56. (This story has been refiled by adding the omitted ‘percent’ symbol in paragraph 2)
