Staff Reporter
FedEx Corp. shares dropped over 5% in after-hours trading on Thursday after the company lowered its full-year guidance for the third straight quarter.
This adjustment comes amid growing macroeconomic challenges and uncertainty in the U.S. industrial sector, which are affecting higher-margin business-to-business shipping services.
The company (NYSE: FDX) now predicts revenue will remain flat or decline slightly year over year, a shift from its previous outlook of steady revenue. Expected earnings per share, excluding certain costs, are projected to be between $18 and $18.60, down from an earlier forecast of $19 to $20 per share.
A significant factor of concern for FedEx’s profitability is the rapid rise in tariffs and tariff threats from the United States. This situation could lead to retaliatory measures and fears of reduced consumer demand as prices climb.
In its fiscal third quarter ending February 28, FedEx reported a 1.9% increase in revenue, totaling $22.2 billion, and an adjusted operating income of $1.5 billion, an 11% rise year over year. This marked the first revenue growth since the fiscal year began in June, despite challenges from a compressed peak shipping season and severe weather events, including wildfires and winter storms in North America.
While adjusted earnings per share fell short of Wall Street estimates by 12 cents, they were still up 17% compared to the same period last year. Revenue also exceeded expectations by $320 million.
FedEx attributed its improved profitability to three key factors: the successful transformation of its Drive network, which aims to eliminate $4 billion in structural costs—$2.2 billion of which is targeted for the current fiscal year—while enhancing customer service; increased pricing across its transportation segments; and higher shipping volumes at FedEx Express.
The company achieved $600 million in cost savings from the Drive initiative during the quarter.
FedEx Express, now integrating its network with FedEx Ground, saw a 17% increase in adjusted operating income, reaching $1.4 billion, despite the significant setback from losing a domestic air cargo contract with the U.S. Postal Service. The division benefited from increased U.S. and international export volumes, driving revenue up 2.7% to $19.2 billion.
However, FedEx Freight faced challenges, as management announced in December that it would spin off the division into a separate less-than-truckload company. Operating results were impacted by lower fuel surcharges, a decrease in weight per shipment, and fewer shipments overall. As a result, operating income fell 23% to $261 million.
