FedEx Plans $5 Billion Buyback of Shares
[Stay on top of transportation news: Get TTNews in your inbox.]
FedEx Corp. on March 21 reported mixed earnings that beat Wall Street analyst expectations regarding profitability. Still, the company narrowly missed its quarterly revenue number when the package delivery giant announced its third-quarter fiscal 2024 financials.
FedEx ranks No. 2 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.
The company also said it plans to buy back $5 billion of its stock as the long-term cost-cutting and restructuring program, known as DRIVE, to reduce expenses by $4 billion in 2025 is working.
FedEx reported revenue of $21.7 billion, compared with $22.2 billion a year ago. Industry analysts Trefis and Bloomberg said they expected revenue to be $300 million higher at $22 billion. Net income was $879 million or $3.51 a share, compared with $771 million, $3.05, a year ago. Analysts said the income figure easily beat expectations of $3.46.
The DRIVE initiative is a multiyear effort to improve the efficiency with which FedEx picks up, transports and delivers packages in the U.S. and Canada.
“FedEx delivered another quarter of improved profitability in what remains a difficult demand environment, reflecting outstanding service and continued benefits from DRIVE,” CEO Raj Subramaniam said in a statement. “We are making meaningful progress on our transformation, while strengthening our value proposition and improving the customer experience. I’ve never been more confident in our path ahead as we build a more flexible, efficient and intelligent network.”
Earlier, the company called for permanent cost reductions of $1.8 billion this year and cut its capital spending plan to $5.4 billion, compared with a previous estimate of $5.7 billion. FedEx said it will prioritize “investments to improve efficiency, including fleet and facility modernization, network optimization and automation.”
Meghann Erhart of Relay Payments shares ways to prevent falling prey to fuel card skimming. Tune in above or by going to RoadSigns.ttnews.com.
According to Bloomberg News, Subramaniam is restructuring the company’s delivery networks, part of a sweeping plan that has included tens of thousands of job cuts. The overhaul, announced last year, marks a shift from the strategy of founder Fred Smith, who started FedEx in 1971 and long defended a two-network approach as a competitive advantage. This quarter’s improved numbers were helped by parking several older, more expensive-to-fly aircraft, reducing some flight hours and flying fewer but fuller aircraft.
“DRIVE is having a real impact, supporting both operating income growth and margin expansion,” Executive Vice President and Chief Financial Officer John Dietrich said. “As we look ahead, we’re focused on continuing to deliver on DRIVE and our commitments to support long-term shareholder returns.”
As the world has shifted into a post-COVID economy, FedEx’s Express delivery unit has struggled with falling volumes. One of its main customers, the U.S. Postal Service, is shifting some of its package delivery services from more expensive air services to less expensive ground operations.
Chief Customer Officer Brie Carere said on a call with analysts after the financials were announced that FedEx should know “in the coming weeks or months” if it has a new contract with USPS, which is set to expire Sept. 29.
According to Reuters, FedEx is the largest USPS domestic air contractor, supporting its Priority Mail and other quick services.
USPS payments to FedEx reached $2.4 billion during the postal service’s fiscal year ended September 2020. That shrank to $1.7 billion in fiscal 2023.
FedEx expects to repurchase an additional $500 million of common stock during the fiscal fourth quarter, bringing the fiscal 2024 buyback total to $2.5 billion. The board of directors also has authorized a new $5 billion share repurchase program, which is in addition to an existing $600 million that remains under its 2021 initiative.
Want more news? Listen to today's daily briefing above or go here for more info
FedEx Express is the company’s biggest revenue producer, and that division saw a 2% decline in revenue, reporting $10.1 billion compared with $10.3 billion in the previous fiscal year.
Revenue at FedEx Ground improved by 1% to $8.7 billion from $8.6 billion a year ago, and FedEx Freight dipped by 3% to $2.12 billion from $2.18 billion a year ago.
The company said the Express and the Ground divisions benefited from lower structural costs in the quarter.
FedEx gave investors plenty to celebrate, especially as it relates to showing progress toward reducing structural costs, and its announced $5 billion share repurchase program,” Bloomberg Intelligence analyst Lee Klaskow said.
The better-than-expected performance came despite national service disruption in January because of severe winter weather.
FedEx also narrowed its profit forecast for this fiscal year. It now sees adjusted earnings of $17.25 to $18.25 a share, compared with an earlier range of $17 to $18.50.
