ii view: FedEx to offload freight trucking business

Second-quarter results to 30 November  

• Revenue down 0.9% to $22 billion (£17.6 billion) a year ago
• Earnings down 15% to $3.03 per share
• Adjusted profit of $0.99 billion, down from $1.01 billion
• Quarterly dividend of $1.38 per share, unchanged from prior quarter
• $1 billion share buyback

Guidance: 

• Now expects full year adjusted earnings of $19 to $20 per share, down from a previous $20.00 to $21.00 per share

Chief executive Raj Subramaniam, said:

“Our second quarter results demonstrate that our efforts to transform our operations
are working.

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ii round-up:

Global courier FedEx Corp (NYSE:FDX) detailed plans to separate out its freight trucking business as it continues to restructure and focus down on the core delivery unit. 

FedEx Freight is a major transport operator carrying loads between different service centres to then be delivered via different vehicle to a final destination. Adjusted second quarter earnings of $4.05 beat analyst forecasts of $3.90 per share but with the elevated staff costs aiding a narrowing in management’s full year earnings forecast.

Shares for the S&P 500 company rose 3% in US trading having come into this latest news up around a tenth year-to-date. Shares for rival United Parcel Service Inc Class B (NYSE:UPS) are down around a fifth during 2024. The S&P 500 index is up 23%. 

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Employing over 500,000 people, FedEx ships around 15 million items every business day across a network of more than 200 countries. Revenues for the second quarter to late November fell to $22 billion from $22.2 billion in the year ago quarter.

Under the company’s ‘Drive’ transformation programme, FedEx has been restructuring and cutting costs, merging divisions and closing operational facilities. 

The Memphis headquartered company now expects full year earnings of $19.00 to $20.00 per share, down from a previous $20.00 to $21.00 per share.

A $1 billion share buyback programme was completed during the quarter with cash held of $5 billion as of 30 November. A previously declared dividend of $1.38 per share remained unchanged from the prior quarter. 

Third quarter results are scheduled for 20 March. 

ii view:

Started in 1973, FedEx today operates approximately 5,000 service hubs. Almost 600 aircraft fly between its many outlets sat alongside around 200,000 vans and vehicles. The US remains its biggest market generating 72% of sales over its last financial year, with international operations the balance of 28%.  

For investors, costs such as staff wages remain elevated. Economic challenges including still heightened interest rates may be causing some corporate customers to send items on a cheaper if slower basis. The pandemic did arguably cause its and others to over expand, while competition such as UPS is not standing still. 

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To the upside, restructuring continues to be pushed with the separating-out of the freight business potentially shining a light on the value of the wider group. Diversity of both customer type and geographical region exist. Previous growth orientated acquisitions have included Dutch parcel delivery firm TNT Express in 2016, while a forecast future dividend yield of around 2% is not to be ignored.  

In all, and despite continued risks, this giant of the transportation sector looks to remain worthy of its place in many already diversified long-term focused investor portfolios.

Positives: 

• Performance improvement plan
• Diverse customer base

Negatives:

• Uncertain economic outlook
• Volatile costs

The average rating of stock market analysts:

Buy