Shares of FedEx Corporation (NYSE: FDX) surged more than 7% after the transportation and e-commerce company released annual guidance that beat consensus estimates.
How Did FedEx Do in Q1?
FedEx’s adjusted earnings rose to $6.87 per share in the fiscal fourth quarter that ended May 31, matching the consensus projection. Revenue came in at $24.4 billion, up 8% year-over-year, though slightly below the analysts’ estimates of $24.6 billion.
For the full year, the courier expects adjusted earnings per share (EPS) to be in the range of $22.5 to $24.5 per share, largely above the analyst consensus.
“Our foundational investments have set the stage for a strong fiscal 2023,” said the company’s CEO Raj Subramaniam said in the statement. “As we move forward, our focus will be on revenue quality and lowering our cost to serve.”
In its most recent quarter, FedEx reported a 9.2% surge in its operating profit margins, up from 8.7% in the year-ago period. The boost in profit was driven by a $46 million tax benefit the company said was worth roughly 18 cents per share.
Dividend Boost Helps Shares Rally
Following the coronavirus outbreak, FedEx and its peers have sharply hiked delivery prices to benefit from a massive surge in package demand, helping the delivery companies and couriers drive sales.
The stronger-than-anticipated guidance comes nearly a month after FedEx appointed Subramaniam as its new CEO who replaced the company’s founder Fred Smith. Smith remained FedEx’s chairman after stepping down from the CEO role.
Shortly after his appointment, Subramaniam announced a 53% boost in dividends and promised to contain the company’s capital spending. Furthermore, the courier’s shareholder D.E. Shaw, who occasionally takes an activist role, appointed two new board members.
Furthermore, the Memphis, Tennessee-based company said it also received a profit boost from fuel surcharges and enhanced operations as labor shortage pressures faded and sorting hubs resolved its staffing challenges.
This has helped FedEx significantly improve its customer experience, with the company now delivering packages on time in roughly 93% of cases, up by 4% from December, according to the shipment visibility software maker Ship Matrix. FedEx still trails its biggest rival United Parcel Service (UPS), which continues to maintain its on-time delivery percentage at more than 95%.
On the other hand, the package growth pace is still slowing down as the world recovers from Covid-19 and consumers increasingly spend on entertainment and travel instead of online shopping.
FedEx’s Ground business reported its average daily package volume declined to 9.36 million from about 9.9 million in 2021. The drop was partly offset by solid average revenue per package of $11.41, up from $10.31 a year ago.
Earlier this week, the courier said it will make adjustments to its executive-compensation program to tie cash bonus compensations to its total shareholder return.
The moves come after FedEx held discussions with hedge fund and activist investor D.E. Shaw, which is known for criticizing and suing Exxon Mobil and other giants to push for changes.
The fund’s managing director Michael O’Mary said the two new FedEx board members and the adjustments to its executive-compensation plan will facilitate the courier’s efforts to increase shareholder returns. As of March-end, the hedge fund held a roughly $200 million stake in FedEx, as per FactSet.
FedEx CFO Michael Lenz said the dividend boost indicates the company’s growing confidence in its business roadmap. D.E. Shaw first started pushing for changes at FedEx in late April and has started to increase its stake in the courier in March.
Summary
FedEx shares are trading sharply higher recently on better-than-expected earnings and hiked dividend.
