On Friday, FedEx (FDX.N) experienced a notable surge in its share prices following the announcement of its quarterly profits surpassing expectations, alongside an improvement in the operating margin of Express, its principal division.
The company’s shares escalated by 7.35%, augmenting its market value by $4.86 billion, in contrast to its competitor UPS (UPS.N), which saw a modest increase of 0.6%.
In response to a tepid demand environment, FedEx has implemented various strategies to safeguard the margins at Express.
These measures include the grounding of aircraft, the reduction of flight hours, and efforts towards more efficient capacity utilization of fewer jets.
The company, headquartered in Memphis, Tennessee, disclosed its intention to repurchase $500 million of its shares in the current quarter as part of a newly authorized $5 billion share buyback scheme.
The operating margin at Express, known for its overnight-delivery service, saw a rise to 2.5% in the February fiscal quarter from the previous year’s 1.2%.
Analysts at J.P. Morgan highlighted FedEx’s achievements in lowering capital expenditures, refreshing the buyback program, and exceeding expectations in the Express segment.
Despite these successes, the quarter’s revenue dropped by 2.3% to $21.7 billion, falling short of the anticipated $22.04 billion, according to LSEG data.
FedEx’s CEO, Raj Subramaniam, pointed to the enduring challenges in international business due to the protracted weakness in global trade.
Amid these financial results, FedEx’s role as a gauge for global economic activity was underscored.
Analyst Helane Becker from TD Cowen remarked on the pattern of declining revenue coupled with increasing operating income over three consecutive quarters, indicating the effectiveness of the company’s cost-reduction measures.
FedEx also refined its annual earnings projection to a range of $17.25 to $18.25 per share, slightly adjusting from the previously estimated range.
The firm is under pressure from investors to boost profitability in its air-based Express segment, especially with ongoing contract renewals with USPS and labor negotiations.
Analysts from Baird lauded FedEx for its improved margin performance at Express despite revenue and demand challenges, describing the quarterly outcome as a standout achievement against lower expectations.
Following these developments, at least ten brokerages elevated their price targets for FedEx, with Raymond James making the most significant adjustment of a $50 increase.
Over the past year, FedEx’s shares have consistently outperformed those of its rival UPS.