FedEx Beats Quarterly Wall Street Profit Expectations
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FedEx Corp. posted a higher profit than Wall Street expected in its most recent quarter, but trimmed expectations for the full year.
The company posted net income of $1.08 billion, or diluted earnings per share of $4.23, in the three months that ended Aug. 31. That compared with a profit of $875 million, $3.33, a year earlier, it said Sept. 20.
On an adjusted basis, FedEx reported a $1.16 billion profit, $4.55, in the most recent three months, the company’s first quarter for fiscal 2024, compared with $905 million, $3.44, in the year-ago period.
The company beat Wall Street expectations when it came to profits, topping a consensus estimate of $3.70 by 22.9% on an adjusted basis, according to Zacks Equity Research, but came up shy on revenue.
Memphis, Tenn.-based FedEx said its first-quarter revenue totaled $21.7 billion, compared with $23.2 billion a year earlier. The company’s operating income totaled $1.49 billion, compared with $1.19 billion 12 months earlier. Analysts had expected earnings of $21.84 billion, according to Zacks.
FedEx ranks No. 2 on the Transport Topics Top 100 list of the largest for-hire carriers in North America. It is the top-ranked less-than-truckload player, package carrier and mail carrier.
The outlook for the coming year is not as rosy as previously expected, the company said.
FedEx said it now expects flat full-year revenue compared with fiscal 2023, a less-optimistic outlook than a prior forecast of flat to low-single-digit-percent revenue growth.
Also, the company trimmed its full-year EPS guidance before mark-to-market retirement plan accounting adjustments to $15.10-$16.60 from $15 to $17.
The coming year is unlikely to meet expectations partly because of a significant decrease in demand surcharges and fuel price headwinds, CEO Raj Subramaniam said during the company’s Sept. 20 quarterly earnings call.
At the company’s biggest units, FedEx Ground posted revenue of $8.42 billion in the most recent three-month period, compared with $8.16 billion in the year-ago quarter. The unit posted an operating profit of $1.103 billion in the most recent quarter, compared with an operating profit of $694 million a year earlier.
FedEx Express saw revenue fall to $10.085 billion in its first fiscal quarter, compared with $11.127 billion a year earlier. However, the segment reported an operating profit of $205 million in the latest quarter, up from $174 million in the year-ago period.
“FedEx Ground had an outstanding quarter which, when combined with improved earnings at FedEx Express and expense controls across the organization, led to our better-than-expected overall financial performance,” Subramaniam said in a statement accompanying the results. “FedEx is well-positioned to continue to deliver improved profitability while becoming an even more flexible, efficient and data-driven organization.”
A cost-cutting and restructuring effort known as DRIVE is underway at the company. The cost-cutting has included layoffs, furloughs, decreased hours and other measures to trim expenses, including April’s announcement of the consolidation of FedEx Express, FedEx Ground and FedEx Services.
FedEx also upped rates, pruned its flight schedule, pared back executive positions and shut offices around the globe. During the earnings call, Subramaniam said FedEx completed the shuttering of 29 terminals in August.
The company executed well in the most recent quarter, but the macroeconomic picture is not good, Chief Customer Officer Brie Carere added during the call.
“In the first quarter we remained focused on revenue quality and being a valued partner to our customers, we did this in an operating environment marked by continued, but moderating volume pressure, mixed yield dynamics and unique developments in the competitive landscape,” she said.
FedEx attracted new customers as a result of testy UPS Inc. labor negotiations with the Teamsters union and Yellow Corp. filing for bankruptcy protection, Subramaniam said, although the company had been “highly discerning” in what business it accepted.
FedEx captured 400,000 packages a day in additional business as a result of uncertainty surrounding UPS’s shipping ability during potential labor action, and FedEx Freight added 5,000 incremental average daily shipments in August “at attractive rates” as a result of Yellow’s demise, said Carere.
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The business won after Yellow declared bankruptcy Aug. 6 can be broken into 50% acquired directly from the Nashville, Tenn.-based less-than-truckload carrier, and 50% that FedEx won after rivals failed to meet customer expectations after initially beating FedEx to Yellow contracts, she said. “I am confident we will keep the majority of it,” she added.
Retaining the business acquired was expected because of the terms of the contracts that were agreed when it was added, said Chief Financial Officer John Dietrich. “We got this business, and we want to keep it,” added Dietrich.
The pricing market has been rational for the last few years, Carere said, adding that FedEx was a price leader, and that it would retain any new customers “because we’re the better provider.”