Investors think the shipper's cost cuts are paying off
FedEx $FDX is delivering some big stock gains Wednesday. Shares in the delivery giant are up more than 13% in early trading after the company posted earnings that prove its cost cuts are paying off. The stock is at its highest price of the year so far.
The shipper reported net income of $1.5 billion, up slightly from the same time last year, on $22.1 billion in revenue, which was slightly less than the same time last year. Similar trends extended to FedEx’s full fiscal year, which closed with the quarter: $4.3 billion in net income (up) on $87.7 billion in revenue (down). In short: The business is more profitable just as concerns about falling freight demand are beginning to fade. CEO Raj Subramaniam spelled it out on the company’s earnings call.
“Ground delivered its highest adjusted operating income in company history for both the fourth quarter and the full year,” he said. “At Freight, fourth quarter operating income increased despite significant demand weakness. In fact, because of our strong fourth quarter performance, Freight ended fiscal year 2024 with full-year operating margin equal to last year’s all-time high. Adjusted Express operating margin increased sequentially in the quarter, but declined year-over-year as expected. We continue to take action to unlock the full profit opportunity that exists in this business.”
The margin improvement is due in part to the company’s “DRIVE” cost-cutting initiative. (Of course, those savings were offset by share buybacks $2.5 billion in share buybacks in fiscal 2024.) The company expects to save $5 billion by the end of this fiscal year compared with two years ago, with a little more than $2 billion of that being permanent. As part of that effort, FedEx announced that it would be laying off lots of employees, including 2,000 recently announced departures in Europe as part of what CFO called a “very important” $600 million contribution to that 2025 goal.
“We have a clear line of sight to achieving 10% adjusted operating margin on $100 billion revenue,” Subramaniam said. Its latest fiscal year had reported profit margin of 6%.
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