Published - March 17, 2023 @ 10:39 AM (EET)

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Following its efforts to reduce costs and offset a decrease in package volume, FedEx Corp's (NYSE:FDX) shares rose when the courier raised its profit forecast.

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In a statement on Thursday, the Memphis, Tennessee-based company said that it expects adjusted earnings for this fiscal year to be between $14.60 and $15.20 per share, up from its previous estimate of no more than $14 and exceeding the average analyst estimate of $13.57, according to Bloomberg's compiled data.

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Chief Executive Officer Raj Subramaniam stated that the company has been improving efficiency and that its cost-saving measures are paying off, resulting in a better outlook. Additionally, FedEx reported third-quarter profits that surpassed Wall Street's projections.

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In post-market trading Thursday, the company's stock had risen by over 10% and has gained 18% this year, well above the S&P 500 Index's increase.

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WHY IT MATTERS

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In response to lower package volume due to customers returning to physical stores and spending more on services after the pandemic, Subramaniam has implemented cost-cutting measures and worked to strengthen operations. He had previously directed the company to save up to $3.7 billion from its initial annual spending plan, which included reducing top management positions by 10%.

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While the courier made the cuts throughout the company, Express, FedEx's largest unit, bore the brunt of them. As supply-chain disruptions eased, the courier reduced flights and parked older planes as customers returned to using ships for cargo transport. Additionally, volumes have also declined at Ground and FedEx Freight, the company's trucking division.

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FedEx has maintained strong pricing despite the weakened demand, particularly for ground deliveries. It had announced a 6.9% general rate increase this year, the most significant rate hike in the company's history.

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FedEx reported that its adjusted profit in the third quarter was $3.41 per share, surpassing analysts' average estimate of $2.71 per share. However, its revenue of $22.2 billion was lower than analysts' projected $22.7 billion.

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The Express business suffered a 77% decline in operating income to $119 million due to a global reduction in volume, partially offset by a 3% rise in revenue per package. The Ground unit experienced an 11% increase in revenue per package, which helped compensate for the lower volume. Meanwhile, operating income in the division surged 32% to $844 million during the quarter.

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Additionally, the Freight unit saw an 11% increase in revenue per shipment and benefited from a one-time gain from the sale of a facility. The division's operating profit increased by 15% to $386 million.

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Cost reductions were crucial in achieving a 5.3% adjusted operating margin, which, though lower than the previous year, exceeded analysts' expectations by 100 basis points.

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Chief Financial Officer Michael Lenz stated in the company's statement, "Our enhanced earnings forecast shows our trust in our ability to carry out our plans while dealing with the persistent global volume weakness that we are facing throughout our operations."

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