FedEx Corp. is restructuring to restore its growth

Dividend growth and active share buybacks underscore the management’s belief in the intrinsic value of the company, while cost-saving initiatives should further enhance profitability. In short, FedEx is a top pick for the long run.

The stock trades at 13.0 times the company’s forward earnings forecast.

FEDEX CORP. (New York symbol FDX; www.fedex.com) delivers packages in the U.S. and 220 other countries.

Due to lower volumes at its air-based Express business, FedEx plans to cut about 2,000 jobs at its European operations. The company expects to pay $250 million in severance and other costs, but the plan should cut between $125 million and $175 million from its annual costs by the end of the fiscal year ending May 31, 2027.

These latest job cuts are in addition to FedEx’s current restructuring plan, which includes merging its FedEx Express (air freight), FedEx Ground, FedEx Services and other smaller operating companies into a single division.

In response to still-elevated inflation and interest rates, FedEx’s customers are switching to its slower, less-expensive delivery services. Businesses are also shipping fewer packages.

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In its fiscal 2025 first quarter, ended August 31, 2024, revenue declined 0.5%, to $21.58 billion from $21.68 billion a year earlier. That missed the consensus forecast of $21.95 billion.

FedEx continues to make progress with its major restructuring plan, which includes merging its FedEx Express (air freight), FedEx Ground, FedEx Services and other smaller operating companies into a single division. These moves should cut $4.0 billion from its annual costs by the end of fiscal 2025.

If you exclude costs related to that plan and other unusual items, FedEx’s earnings fell 23.0%, to $892 million from $1.16 billion. The company spent $1 billion on share buybacks in the quarter, which is why earnings per share declined at a slower rate of 20.9%, to $3.60 from $4.55. That also missed the consensus estimate of $4.82 a share.

Growth Stocks: Further strategic review could deliver even more benefits

The United States Postal Service (USPS) has named United Parcel Service Inc. (New York symbol UPS) as its primary air cargo provider when its current contract with FedEx expires on September 29, 2024.

In the past few years, USPS has shifted its letters and packages from FedEx’s planes to its lower-fee trucks, so losing this contract should improve the company’s long-term profitability.

The company is now reviewing how its less-than-truckload operations (10% of total revenue) fit with its overall business. That could lead to a sale or spinoff. Meantime, FedEx now expects to earn between $20.00 and $21.00 a share for all of 2025, which is down from its previous forecast of $20.00 to $22.00 a share. The stock trades at a reasonable 13.0 times the midpoint of that new range.

As well, with the July 2024 payment, the company raised your quarterly dividend by 9.5%, to $1.38 a share from $1.26. The new annual rate of $5.52 yields 2.1%

The company has also added $5 billion to its current share repurchase authorization. It can now buy back up to $5.6 billion of its shares. There are no time limits for those purchases.

Recommendation in Wall Street Stock Forecaster: FedEx Corp. is a buy.

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Jim Bates

Jim is an associate editor at TSI Network. He is the lead reporter and analyst for The Successful Investor and Wall Street Stock Forecaster and a member of the Investment Planning Committee. Jim has held the Chartered Financial Analyst designation since 1992 and spent more than a decade at the Financial Post DataGroup before joining TSI Network. He has a Bachelor of Commerce degree from the University of Toronto.

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