FedEx Corporation isn’t finished with its reorganization.
The Memphis, Tenn.-based courier has its eye on its freight operations, a move that could see a sale of the LTL (less-than-truckload) business.
Rajesh Subramaniam, FedEx’s President and CEO, told investors in a late-Tuesday earnings call that the company’s management team, board of directors and outside advisors are assessing the role of FedEx Freight within our portfolio structure, and possible steps to unlock further sustainable shareholder value. “We are committed in completing this review thoroughly by the end the calendar year.”
UBS analyst Thomas Wadewitz stated Wednesday in a research report that a “spin-out of the LTL business” is a possible path and could unlock meaningful values considering the much higher valuations other leading nonunion LTL companies.
The analyst’s focus is on a spinoff, which suggests that selling the operation may not be an option. FedEx Freight, the largest LTL carrier and best-performing business of the Transportation Services firm in the U.S., could have some difficulty finding a buyer.
FedEx’s fourth quarter was very successful, indicating that its cost-cutting plan , dubbed DRIVE, to save $4 billion in fiscal 2025, was the right one.
Subramaniam informed investors that the company had achieved year-over-year growth in operating profit and margins in each quarter of FY ’24. “We reduced our capital intensity and reached our FY ’25 goal of less than 6.5% a year earlier.”
He said that the company’s full-year earnings were “higher than the firm’s initial guidance range, up 19% year-over-year adjusted,” and that FedEx is continuing to roll out Network 2.0, as well as finalizing the transition from to one FedEx which became effective on June 1. One FedEx is a consolidation of FedEx Express and FedEx Ground into Federal Express Corp.
Subramaniam stated that the company was “firmly on track” in achieving its $4 billion savings target. He also stated that the company expects to “another $2 Billion to follow from Network 2.0”.
Subramaniam stated that “we have a clear vision of achieving a 10 percent adjusted operating profit on $100 billion in revenue”.
He also discussed the possibility of changes in trade policy due to the upcoming U.S. presidential election, and the potential impact on direct customers in China. Subramaniam stated that trade patterns were “fundamentally changing,” but the good news is that FedEx’s network is “here and everywhere”. He explained that market information at the ground-level allows FedEx the ability to react quickly.
“When manufacturing moves from the United States to Mexico, we are a significant presence both in Mexico and the United States …. Subramaniam added that, “while we see the overall trends of trade flattening out, there are still opportunities as supply chains patterns change.”
The company announced its fourth-quarter results for the period ending May 31 at the close of Tuesday’s trading. Net income for the quarter dropped 4.5 percent from $1.54billion, or $6.05 per share, to $1.47billion, or $5.94 per diluted share. On a adjusted basis, the net income increased 7.2 percent, to $1.34billion, or $5.41 per diluted share. This compares with $1.25billion, or $4.94 a year earlier. This was more than enough for Wall Street to beat its expectations of adjusted diluted earning per share (EPS), which were set at $5.35. Revenues for the period increased 0.9 percent from $21.9 billion to $22.1 billion, beating Wall Street’s consensus estimate of $22.07billion.
The net income for the year grew by 9.1 percent, to $4.33 Billion, on a revenue decline of 2.8 percent to $87.7 Billion.
FedEx expects to grow revenue in the low to mid single-digit range for fiscal 2025. Diluted EPS will be between $18.25 and $20.25 based on non-GAAP, after excluding costs associated with business optimization initiatives, and before certain retirement account adjustments.
Investors were pleased with the results. FedEx shares were up 14.8 percent on Wednesday to $294.32 at the start of early afternoon trading.
Brie A. Carre, executive vice-president and chief customer officer at FedEx, said that revenue growth was positive in the fourth quarterly due to volume stabilization, and modest yield improvements. She said that revenue at FedEx Ground increased 2 percent, driven by a 1 % increase in yields and a 1% increase in volume. FedEx Freight revenue rose 2 percent due to higher yields and slightly increased average daily shipments. FedEx Express’s revenue for the quarter was flat, but package yields increased by 2 percent. This was due to a “tapering” of international export surcharges, and an increase in deferred services.
According to Carere’s analysis, the volume continues to stabilize, as the declines in domestic U.S. package volume moderated while international export package volumes increased by 8 percent.
FedEx has been laying off employees as part of its restructuring. The company will shutter four facilities in North Carolina and South Carolina, affecting 310 jobs. In April, the company announced that it would close four facilities in southwestern Florida by July 29, resulting to the layoffs of 200 couriers and 8 managers. FedEx announced last week that it would cut as many as 2,000 staffers from its European back-office teams and commercial teams.