On Wednesday, FedEx Corporation (NYSE: FDX) delivered a positive earnings surprise as it poached customers from its rival United Parcel Service Inc (NYSE: UPS) and took advantage of the demise of the Yellow Corporation (OTC: YELLQ) who ceased its operations in July despite being a dominant player on the less-than-truckload transportation front. Upon announcing results, FedEx shares rose 5.7% to $264.60 in extended trading.
Fiscal First Quarter Highlights
For the quarter that ended on August 31st, FedEx reported that revenue dropped to $21.7 billion as it began the previous fiscal year with quarterly revenue of $23.2 billion. Yet, FedEx made a net income of $1.08 billion, or $4.23 a share which is a 32% YoY improvement from last year's comparable quarter when it made $875 million, or $3.33 a share. When making adjustments for "business optimization" costs, adjusted earnings end up amounting to $4.55 a share.
The FedEx unit which delivers packages from retailers like Walmart (NYSE: WMT) experienced a 59% rise in its operating income.
The Ground unit that ships packages in the U.S. and Canada picked up about 400,000 additional packages per day as UPS customers shifted to alternate carriers ahead of August 1st which was the expiration date of the contract with the unionized workforce. The UPS union ended up approving a new labor contract on August 22nd, ending the strike threat. But while tensions lasted, FedEx's business benefited.
FedEx Freight who provides less-than-truckload LTL freight took advantage of the bankruptcy of Yellow as it added 5,000 average daily shipments, but its operating income still dropped 26%.
FedEx's air-based Express business pulled out an 18% operating profit gain for the quarter as it reduced expenses arising from parking aircraft and layoffs and succeeded to more than offset a 9% revenue decline.
Outlook Shaped By Macro Headwinds
Both FedEx and UPS continue to grapple with deflating demand along with global recession fears. But despite lagging demand, FedEx will be raising its prices as of January 1st for about 5.9% while also introducing demand surcharges for the holiday season.
Also on Wednesday, FedEx altered its full-year fiscal 2024 revenue outlook as it now expects flat revenue YoY, while it previously guided for flat to low-single-digit percent revenue growth. It also increased the lower end of its adjusted fiscal earnings guidance that is now expected in the range between $17 and $18.50 per share, reflecting leaner operations and customer gains.
Ahead Of The Vital Holiday Shipping Season
Without offering a specific forecast for the undergoing quarter and the vital holiday shopping season when volume typically doubles, FedEx only showed that it is well equipped for the task. Well ahead of the holidays, the Memphis-based global delivery company began its fiscal year strong after implementing various cost-cutting measures during its prior fiscal year to address ongoing economic challenges.
Offsetting Shaky Demand
Cost cutting efforts and disruptions of its rivals, including labor tensions at UPS and the bankruptcy filing of Yellow, enabled FedEx to deliver better than expected results amid continued weaker shipping demand. However, gains from UPS tensions are likely to be less durable compared to those from Yellow who is out of business. Under pressure from investors, FedEx will continue its cost cutting efforts, a strategy that also includes consolidating its operating units.
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