FedEx started this fiscal year with a bang, with profits plummeting by over 20%, lowering its full-year guidance, leading to a more than 10% plunge after hours | Financial Report Insights

Considered as an economic indicator, the U.S. express giant FedEx started the new fiscal year with a bang, with sales revenue turning negative growth and profits decreasing significantly beyond expectations, reflecting a sluggish demand in the parcel delivery industry, especially in FedEx's priority express services. To make matters worse, against the backdrop of continued softer-than-expected freight demand, FedEx also lowered its revenue and profit guidance for the current fiscal year, causing concerns among investors about the industry's recovery prospects.

After the U.S. stock market closed on Thursday, September 19th, FedEx announced the financial data for the first quarter of the 2025 fiscal year ending on August 31, 2024, and provided performance guidance for the full year of 2025.

1) Key Financial Data:

Revenue: Revenue for the first quarter was $21.6 billion, a year-on-year decrease of approximately 0.5%, with analysts expecting $21.87 billion, compared to a 0.9% increase year-on-year in the previous quarter.

EPS: Diluted earnings per share (EPS) on a non-GAAP basis for the first quarter was $3.60, a 20.9% decrease year-on-year, with analysts expecting $4.77, compared to a 9.5% increase year-on-year in the previous quarter.

Operating Profit: Adjusted operating profit for the first quarter was $1.21 billion, a 23.9% decrease year-on-year, with analysts expecting $1.63 billion, compared to a 5.6% increase year-on-year in the previous quarter; the adjusted operating profit margin for the quarter was 5.6%, a 1.7 percentage point decrease year-on-year, with analysts expecting 7.41%, compared to a 0.4 percentage point increase year-on-year to 8.5% in the previous quarter.

2) Performance Guidance:

Revenue: Expected low single-digit percentage growth for the full year, previously forecasted as low to mid single-digit percentage growth.

EPS: Excluding retirement plan accounting adjustments based on market prices, the expected diluted EPS for the full year is $17.90 to $18.90, previously expected to be $18.25 to $20.25; excluding costs related to business optimization plans, the expected adjusted diluted EPS for the full year is $20.00 to $21.00, previously expected to be $20.00 to $22.00.

3) Stock Repurchase:

As of August 31, 2024, there is $4.1 billion remaining from the company's 2024 stock repurchase authorization. It is expected to repurchase an additional $1.5 billion in common stock in the 2025 fiscal year, bringing the total repurchase amount to $2.5 billion.

Following the release of the financial report, FedEx's stock plunged after hours on Thursday, with a more than 9.7% increase during the day, dropping by over 10% after hours, reaching a 14% decline.

First Quarter Revenue Declines Instead of Increases, EPS Decline Four Times More Than Analysts' Expectations, Full Year EPS Guidance Range Lowered by Up to 6.7%

Compared to the previous quarter, FedEx's revenue and profit in the first quarter both shifted from growth to decline year-on-year. Revenue unexpectedly declined instead of increasing as analysts predicted, with analysts expecting a growth decrease of nearly 0.8%, while FedEx experienced a 0.5% decline; the EPS profit fell far short of expectations, with analysts expecting a slight decrease of over 4.8% for the quarter, while FedEx's actual decrease exceeded 20%, more than four times the expected decrease by analysts Some comments suggest that in the first quarter, FedEx's performance was dragged down by the transformation of the company's business structure, with a decrease in demand for priority express services and an increase in demand for delayed delivery services, limiting revenue growth.

In terms of performance guidance, FedEx expects the full-year revenue growth percentage to decrease from mid to low single digits to low single digits. At the same time, FedEx has lowered the full-year EPS guidance range before adjustments, with the low end of the new range down by 1.9% compared to previous expectations, and the high end of the new range down by nearly 6.7%. The adjusted full-year EPS guidance range remains unchanged at the low end, but the high 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, express delivery demand remains weak. FedEx has implemented a plan called DRIVE to cut billions of dollars in costs over the next few years through layoffs, restructuring, or business reductions. John Dietrich, FedEx's Chief Financial Officer, stated in the financial report announcement:

"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 weaker-than-expected demand trends."

FedEx's CEO Raj Subramaniam stated in the announcement that the first quarter was a challenging quarter, and the company remains focused on transforming its network, improving efficiency, reducing service costs, and enhancing the company's ability to quickly adapt to changing market conditions. Subramaniam said he remains confident that the company will have opportunities to create value in the future, as the company focuses on reducing structural costs, increasing profit revenue, and leveraging insights gained from its vast data collection to continue building the world's most flexible, efficient, and intelligent network