By Lisa Baertlein and Ananta Agarwal
(Reuters) -FedEx forecast fiscal 2025 profit above analysts’ estimates on Tuesday, anticipating that the cost reductions planned for the year would deliver margin gains even as revenue remains challenged by lackluster demand for parcel shipping.
Shares of FedEx (NYSE:) were up 14.9% at $294.50 in extended trading after the delivery company targeted fiscal 2025 earnings of $20 to $22 per share – the midpoint of which was slightly above analysts’ estimate of $20.92. That helped investors shake off worries that gains from slashing costs and merging operations were diminishing.
Memphis-based FedEx’s earnings excluding items grew 7.2% to $1.34 billion, or $5.41 per share, for the fourth quarter that ended on May 31. Operating margin also improved to 8.5% from 8.1% in the year-ago quarter.
“These results are unprecedented in this current environment,” FedEx CEO Raj Subramaniam said. “We expect this momentum to continue in fiscal 2025.”
The company’s largest unit, Express overnight delivery, has struggled with falling volumes as the U.S. Postal Service shifts packages from higher-margin air services to more economical ground services. FedEx’s unprofitable U.S. Postal Service contract, which accounted for about $1.75 billion in revenue to FedEx during the postal service’s latest fiscal year, will end on Sept. 29.
Express operating margin, excluding items, fell to 4.1% during the quarter, from 5.0% a year earlier.
FedEx previously said that eliminating the costs related to supporting postal service volume will help profitability improve in fiscal 2025 and beyond.
FedEx’s “guidance was impressive, in light that it did not renew its contract with the U.S. Postal Service,” said Louis Navellier, founder and chief investment officer of asset manager Navellier & Associates.
CEO Subramaniam, who succeeded founder Fred Smith two years ago, has been squeezing out costs and merging its separate airplane- and truck-based delivery units amid pressure from activist investors.
But the revenue side of its business remains challenging. Industrial production and parcel shipping demand – two key business drivers – are lackluster as inflation and higher interest rates take a toll.
FedEx revenue hit $22.1 billion in the fourth quarter, up 1% from the year earlier, and slightly above analysts’ estimate of $22.06 billion.
At the close of trading on Tuesday, FedEx shares had posted a 12-month gain of 10%, versus a 20% drop for rival United Parcel Service (NYSE:).
