FedEx (FDX +15%) saw a significant increase after closing FY24 on a high note. The company posted a solid Q4 beat on EPS, with revenue rising 0.8% year-over-year to $22.11 billion, surpassing expectations. This marks the first year-over-year revenue growth after six consecutive quarters of declines and eight straight top-line misses.
- FDX acknowledged a challenging demand environment in FY24 but focused on controllable factors, achieving full-year adjusted earnings at the higher end of its guidance range, up 19% year-over-year, despite lower revenue compared to initial growth expectations. Q4 showed modest yield improvement and volume stabilization across segments, though demand has yet to notably increase.
- In Q4, FedEx Express segment revenue remained flat year-over-year at $10.42 billion. FedEx Ground segment revenue rose 2.4% to $8.49 billion, and FedEx Freight segment revenue increased 1.6% to $2.31 billion. Ground delivered its highest adjusted operating income in company history for both Q4 and the full year. Despite significant demand weakness, Freight's Q4 operating income increased. Adjusted Express operating margin improved sequentially but declined year-over-year as expected.
- For FY25, FDX projects adjusted EPS of $20.00-22.00 with revenue growing in the low-to-mid single digits, aligning with +3.2% analyst expectations. Revenue growth is anticipated to be driven by improving trends in US domestic parcel and international export demand. FY25 yields are expected to benefit from improved base rates and increased fuel surcharges. FDX anticipates a competitive but rational pricing environment.
- FDX expects the demand environment to moderately improve throughout FY25. US domestic parcel and LTL volumes are projected to increase year-over-year as the year progresses. International air cargo demand from Asia accelerated in early May and is stronger than previously expected. Shippers are facing tightened capacity in both air and sea freight services.
- The contract with the US Postal Service will expire on September 29. Until then, FDX expects volumes to remain near contract minimums, consistent with Q4.
- FDX announced it is working with outside advisors to assess FedEx Freight, with completion expected by the end of the calendar year. Despite significant demand weakness in Q4, Freight, its smallest segment, saw a 5.7% revenue decline in FY24 but maintained the highest operating margin at 20%, compared to 11.8% for Ground and 1.9% for Express. A potential sale could boost growth but impact margins.
Overall, investors are optimistic about FedEx's Q4 performance and FY25 outlook. The return to year-over-year revenue growth and positive revenue results were well-received. Although demand remains a challenge, the expectation of a moderately improving demand environment is encouraging. Additionally, the review and potential sale of the Freight segment are seen positively by investors.
