FedEx stock falls 15% after disappointing earnings

FedEx reported $21.6 billion in revenue for its first quarter, which ended Aug. 31, down 0.5% from the corresponding period in 2023. [caption id="attachment_94120" align="alignright" width="300"] (Courtesy/FedEx)[/caption] The company reported $18.3 billion in revenue for FedEx Express , down 1% year over year, and $2.3 billion in revenue for FedEx Freight , down 2% YoY, according to the company’s Sept. 19 earnings report. THE BIG PICTURE: Though FedEx’s revenue drop in its first fiscal quarter was small, it was a reversal from earnings in Q4 , when revenue grew 0.9% YoY. “Our results reflect a challenging Q1 demand environment, which was weaker than we expected, particularly in the U.S. domestic package market,” FedEx President and Chief Executive Raj Subramaniam said on the Sept. 19 earnings call. BY THE NUMBERS: FedEx reported $1.1 billion in operating income, down 27% YoY. FedEx also reported in Q1: Diluted earnings per share of $3.21, down 24% YoY; Net income of $794 million, down 26% YoY; Package revenue of $16.5 billion, down 1% YoY; U.S. domestic package revenue of $11.8 billion, down 2% YoY; International export package revenue of $3.6 billion, up 4% YoY; and Freight revenue of $1.6 billion, down 3% YoY. Average daily package volume (ADV) in Q1 was 16,231, flat YoY. Revenue per U.S. domestic package remained flat YoY at $13.87 while revenue per international export package fell 3% YoY to $50.06. FedEx Express moved an average of 9,294 tonnes of cargo per day in Q1, down 1% YoY. Revenue per pound of cargo remained flat YoY at $1.19. FedEx Freight moved an average of 92,000 daily shipments, down 3% YoY. Average revenue per shipment was $378.09, up 2% YoY. WHAT THEY’RE SAYING: FedEx saw increased demand for lower-yielding services, including a shift in customer preference from priority to deferred services, Subramaniam said. He also noted that Q1 had one less operating day than the previous quarter. “ Looking at our performance on a year-over-year basis, there are several factors at play,” he said. “Weakness in the industrial economy pressured our B2B volumes, particularly in the U.S.” Across U.S. domestic express services, volumes fell 3% due to the weaker B2B demand environment, Chief Customer Officer Brie Carere said on the call. STATE OF PLAY: FedEx shared plans last week for a 5.9% general rate increase, effective in January. The company also increased its fuel surcharge tables and announced new demand surcharges, to take effect in the coming weeks, Carere said. “Planned enhancements include both operational and pricing changes, which will drive increased density per flight, lower last-mile cost and improved international dimension capture,” Carere said. “As part of this strategy, in Q1 we launched our new FedEx International Deferred Freight Service, which has a slower transit time than international economy freight.” FLASHBACK: The U.S. Postal Service in April awarded an air cargo services contract to UPS that will see the express carrier become the postal service’s primary air cargo provider — a role held by FedEx for more than 20 years. FedEx’s contract with USPS expires this month and the company “will be making network adjustments post expiration,” Carere said. “Regarding our expected earnings cadence for the remainder of the fiscal year, the U.S. Postal Service contract termination headwind will begin in Q2, as expected,” Chief Financial Officer John Dietrich said on the call. “ We plan to reduce our daytime flight hours by approximately 60%, with the majority of that reduction taking place in October.” FedEx ranks first on Air Cargo Next ’s Freight 50 list of top air cargo carriers, flying 19.5 billion cargo tonne kilometers in 2022. The company ranks 24th on Air Cargo Next ’s Power 25 list of the top airfreight forwarders, moving 210,500 tonnes of air cargo in 2023. [caption id="attachment_57132087" align="alignright" width="300"] (Courtesy/FedEx)[/caption] NOTEWORTHY: At the conclusion of Q1, FedEx had 698 aircraft in its fleet, with plans to bring that number to 721 in fiscal 2025. The fleet contains: 92 Boeing 757-200s. 140 B767Fs, with plans for delivery of nine more in fiscal 2025 and three more in fiscal 2026. FedEx has options to purchase an additional 43 B767Fs, according to the report. 37 Boeing MD-11Fs, with plans to retire nine in fiscal 2025, 10 in fiscal 2026, nine in fiscal 2027 and nine more in fiscal 2028. FedEx said its MD-11F retirement schedule is subject to change, which appears likely after the company brought an MD-11F out of storage to prepare for fleet reentry earlier this month. This is at least the third MD-11F that FedEx has brought out of storage this year, despite the company’s announced plans to retire all its MD-11Fs by May 31, 2028. 57 B777Fs, with plans for delivery of two more in fiscal 2025. FedEx has options to purchase an additional 23 B777Fs. 65 Airbus 300-600s. 231 Cessna 208Bs. 19 Cessna 408s, with plans for delivery of 17 more in fiscal 2025 and 14 more in fiscal 2026. FedEx has options to purchase an additional 50 Cessna SkyCourier 408s. 19 ATR 72s. 22 ATR 72-600Fs, with plans for delivery of four more in fiscal 2025 and an additional four in fiscal 2026. FedEx has options to purchase an additional 20 ATR 72-600Fs. 16 ATR 42s. Leases for two A300-600s will expire in fiscal 2026 and there is an executed agreement for FedEx to purchase one of those aircraft that year. It is unclear how the Boeing strike will affect FedEx’s fleet plans. FUTURE LOOK: FedEx completed a $1 billion accelerated share repurchase transaction for 3.4 million shares in Q1, according to the earnings report. The company expects to repurchase an additional $1.5 billion of common stock during fiscal 2025, for a buyback total of $2.5 billion. “Looking at FY2025, we now expect revenue to grow at low single-digit rates,” Carere said. “We previously expected low to mid-single-digit revenue growth this fiscal year. At the midpoint of our outlook range, we expect the demand environment to moderately improve as we move through the year, driven by slight recovery in the industrial economy, e-commerce growth and low inventory levels. We anticipate some improvement in the pricing environment skewed toward the second half of the fiscal year.” MARKET REACTION: Shares of FedEx ( NYSE: FDX ) we re down 15.23% from market open to $254.64 as of market close today. FedEx has a market capitalization of $62.9 billion.

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