Shares of FedEx jumped over 5% on Thursday after the shipping giant reported better-than-expected fiscal first quarter results. The stock rally comes amid a broader market selloff, with investors cheering FedEx’s improved profitability and outlook.
FedEx earned $4.55 per share last quarter, handily beating analyst forecasts of $3.70. Though revenue declined 6.5% year-over-year to $21.7 billion, the company boosted its operating margin to 7.3%, surpassing expectations.
The strong quarter was driven by effective cost-cutting under CEO Raj Subramaniam and higher shipping volumes as key rivals dealt with challenges. FedEx gained U.S. market share in recent months which it expects to retain.
Management raised full-year EPS guidance to a range of $17.00 to $18.50, up from prior outlook of $16.50 to $18.50. The company also announced new demand surcharges for the holiday peak season and a January rate increase.
FedEx continued benefiting from its DRIVE cost savings program which seeks $1.8 billion in total reductions. Steps like reducing flights, realigning staff and shifting to one daily delivery wave boosted efficiency.
The Ground segment was a standout with a 59% jump in operating income as volumes improved. The Express unit grew operating income 18% despite lower revenue. But the Freight division saw income drop 26% on reduced shipments.
The outperformance comes as labor negotiations weighed on service levels at rival UPS. UPS disclosed it lost 1 million packages daily to other carriers, which FedEx said it captured 400,000 of. The bankruptcy of trucking company Yellow also benefited FedEx.
Demand for logistics and shipping services remains resilient despite economic uncertainty. And challenges at competitors created an opening for FedEx to flex its network strength and snatch market share. It expects to maintain most new volumes.
The results suggest FedEx has turned a corner after recent struggles with costs and service issues. The company’s turnaround plan is clearly bearing fruit. And investors have taken notice, bidding the stock price higher after the earnings beat.
FedEx shares have now rebounded nearly 20% from 52-week lows hit in June. The stock remains down 25% year-to-date amid broader market volatility. But it has outpaced the S&P 500 recently.
Thursday’s post-earnings pop provides encouragement that FedEx may sustain its momentum if execution remains solid. But the company still faces macro uncertainty and must continue improving productivity.
The holiday quarter is crucial for delivery firms like FedEx. The company aims to avoid last year’s service shortfalls. Management expressed confidence its initiatives will enable strong peak season performance.
While risks remain, FedEx has proactively adapted its network for holiday demand spikes. And it should reap continued benefits from rival struggles if recent market share gains stick.
Ongoing cost discipline also remains key. As higher rates kick in, boosting revenue, FedEx must maintain focus on trimming unnecessary expenses. Investors want to see margins continue expanding.
The quarterly beat suggests the shipping titan is making strides in its turnaround bid under new leadership. If FedEx sustains stronger operational execution, its stock price could continue recovering lost ground.
But the company must keep innovating and finding efficiency gains in the rapidly evolving logistics arena. Satisfying customers and shareholders means continually improving services and profitability, even in a weakened economic climate.