FEDEX CORP (FDX) Earnings Summary for Q1 FY2025

Key Metrics

• FedEx Express Revenue: $21,579 million (decreased 1% yoy)
• FedEx Express Non-GAAP Operating Income: $953 million (decreased 27% yoy)
• FedEx Express Non-GAAP Operating Margin: 5.2%
• Freight Revenue: $2,329 million (decreased 2% yoy)
• Freight Operating Income: $439 million (decreased 9% yoy)
• Freight Operating Margin: 18.8% (decreased by 140 basis points yoy)

Forward guidance

1. Adjusted EPS Outlook: Narrowed to $20 to $21 for FY '25, down from $20 to $22.
2. Revenue Growth Projection: Expected to grow at low single-digit rates for FY '25, revised from low to mid-single-digit growth.
3. DRIVE Savings: On track for $4 billion in savings for FY '25, with quarterly savings expected to build sequentially throughout the year.
4. LTL Shipments: Anticipated to inflect positively later in FY '25.
5. International Economy Profitability: Expected to improve as part of the Tricolor strategy, with a focus on enhancing operational efficiency.
6. Capital Expenditures: Planned at $5.2 billion for FY '25, consistent with FY '24.
7. General Rate Increase: A 5.9% general rate increase planned for January 2025, with high capture expected.

Key takeaways

• Positives:
  • Raj Subramaniam noted, "We are on track to deliver the $4 billion of savings through DRIVE in FY '25," indicating a strong commitment to cost reduction amidst challenging market conditions.
  • The implementation of the Tricolor strategy is expected to enhance network flexibility and profitability, with Raj stating, "The demand changes we're seeing in the market make Tricolor an even more instrumental element of our longer-term strategy."
  • Brie Carere highlighted, "We continue to gain profitable market share in the United States and around the world," suggesting resilience in certain segments despite overall demand weakness.
  • The company anticipates a modest recovery in the industrial economy and e-commerce growth, with Brie stating, "We expect modest improvement in the U.S. domestic Ground parcel volume."
• Negatives:
  • Raj Subramaniam acknowledged a "challenging Q1 demand environment which was weaker than we expected," particularly in the U.S. domestic package market, impacting overall performance.
  • John Dietrich pointed out that "soft revenue trends" and a shift towards lower-yielding services pressured profitability, with adjusted operating profit declining significantly.
  • The company is facing increased purchase transportation costs, with John noting, "The increase in international economy volume was the primary driver of the $124 million increase in purchase transportation expense."
  • The expiration of the U.S. Postal Service contract is expected to create additional headwinds, with John stating, "We plan to reduce our daytime flight hours by approximately 60%," indicating operational adjustments that may impact service levels.

Peer Summary

• Demand Weakness: UPS noted a slowdown in online sales and manufacturing activity, stating, "In the U.S., online sales slowed and manufacturing activity was lower than we anticipated," reflecting a broader trend of consumer demand softening.
• Revenue Growth Challenges: C.H. Robinson highlighted ongoing demand challenges with the freight market, stating, "the cash freight shipment index was down 2.8% year-over-year in Q3," indicating sector-wide revenue pressures.
• Operational Pressures: Ryder reported, "The earnings decline reflects weaker market conditions in used vehicle sales and rental," suggesting a challenging environment affecting logistics services.
• Pricing Strategy Issues: Forward Air admitted, "we were focused too much on class-based freight business and did not charge enough for the level of service that we provide," indicating competitive pricing pressures impacting profitability.
• Market Sentiment: UPS acknowledged competitive pressures, with Dykes stating, "We know we have to win on capabilities... it is very rational," reflecting a sentiment of heightened competition across the sector.