FedEx's first-quarter revenue declined instead of increasing, with EPS falling more than four times analysts' expectations; the EPS guidance range for this fiscal year has been downgraded by up to 6.7% from previous expectations, and the revenue guidance year-on-year growth rate has been lowered from low to low single digits; the company plans to repurchase $1.5 billion in this fiscal year. Executives said that the adjusted guidance reflects the impact of cost-cutting measures, which help offset the weaker-than-expected demand trend.
FedEx, the US express delivery giant, which is regarded as an economic barometer, had a shocking start to the new fiscal year, with sales revenue turning negative and profits falling sharply, reflecting the low demand in the parcel delivery industry, especially in FedEx's priority express services. What's worse is that, against the backdrop of sustained weaker-than-expected freight demand, FedEx has also lowered its revenue and profit guidance for this fiscal year, which has raised concerns among investors about the industry's recovery prospects.
After the US stock market closed on Thursday, September 19th, FedEx released its financial data for the first quarter of the 2025 fiscal year (referred to as Q1) ending on August 31, 2024, and provided performance guidance for the full year of 2025 (referred to as FY).
1) Key Financial Figures:
Revenue: In Q1, revenue was $21.6 billion, a decrease of approximately 0.5% year-on-year, with analysts expecting $21.87 billion, an increase of 0.9% compared to the previous quarter.
EPS: Diluted earnings per share (EPS) on a non-GAAP basis for Q1 was $3.60, a decrease of 20.9% year-on-year, and analysts were expecting $4.77, an increase of 9.5% compared to the previous quarter.
Operating Profit: Adjusted operating profit for Q1 was $1.21 billion, a decrease of 23.9% year-on-year, with analysts expecting $1.63 billion, an increase of 5.6% compared to the previous quarter. The adjusted operating margin for the quarter was 5.6%, a decrease of 1.7 percentage points year-on-year, with analysts expecting 7.41%, an increase of 0.4 percentage points compared to the previous quarter, reaching 8.5%.
Expected Q3 revenue growth of 3.25%-4.25% and adjusted earnings per share of 0.51-0.52 US dollars, below the market estimate of 0.55 US dollars.
Revenue: The year-on-year growth rate of revenue is expected to be in the low single digits, previously forecasted to be in the low to mid single digits.
EPS: Excluding the accounting adjustments for the retirement plan calculated at market price, the full year diluted EPS is expected to be $17.90 to $18.90, previously expected to be $18.25 to $20.25; excluding costs related to the business optimization plan, the full year adjusted diluted EPS is expected to be $20.00 to $21.00, previously expected to be $20.00 to $22.00.
3) Share Buyback
As of August 31, 2024, the company's remaining share buyback authorization amount is $4.1 billion. It is expected to repurchase an additional $1.5 billion of common stock in the 2025 fiscal year, bringing the total repurchase amount to $2.5 billion.
After the announcement of the financial report, FedEx, which rose more than 9.7% on Thursday, plunged in post-market trading, with a post-market decline of more than 12%, and is now down more than 11%.
First quarter revenue declined instead of increasing, and EPS decline is more than four times the analysts' expectations, with a maximum downward adjustment of 6.7% in the annual EPS guidance range.
Compared to the previous fiscal quarter, FedEx's first quarter revenue and profit both turned from growth to decline year-on-year. The revenue unexpectedly declined instead of growing as analysts predicted, with analysts expecting a decrease by nearly 0.8%, while FedEx's decrease was 0.5%; the profit was even worse than expected, with the EPS decrease of the quarter exceeding 4.8% as forecasted by analysts, while FedEx's actual decrease was over 20%, more than four times the expected decrease.
According to comments, FedEx's performance in the first quarter was hindered by the company's business structure transformation, with reduced demand for its priority express service and increased demand for delayed delivery service, limiting revenue growth.
In terms of performance guidance, FedEx expects its full-year revenue growth rate to decrease from a low single-digit percentage to a low single-digit percentage. At the same time, FedEx has lowered the full-year EPS guidance range before adjustment, with the lower end of the new range decreased by 1.9% compared to previous expectations and the upper end of the new range lowered by nearly 6.7%. The lower end of the adjusted full-year EPS guidance range remains unchanged, while the upper end has been lowered by 4.5% compared to previous expectations.
Due to the rise in prices of essential goods over the past two years, the demand for express delivery is still weak. FedEx has formulated a plan called DRIVE to reduce costs by billions of dollars over the next few years, including layoffs, restructuring, or downsizing. John Dietrich, FedEx's chief financial officer, stated in the announcement of the financial report:
"The revised guidance reflects the company's continued confidence in the implementation of the DRIVE plan and the impact of recent pricing actions. It is expected that these measures will help offset the impact of lower-than-expected demand trends."
Raj Subramaniam, CEO of FedEx, stated in the announcement that the first quarter was a challenging one and the company remains focused on transforming its own network, improving efficiency, reducing service costs, and enhancing its ability to adapt to the constantly changing market situation. Subramaniam said he is still confident that the company will have opportunities to create value in the future because the company is focused on reducing structural costs, increasing profit revenue, and leveraging insights gained from its vast collection of data to continue building the world's most flexible, efficient, and intelligent network.
Editor/Emily
