The State of FedEx: A Look Ahead at Third-Quarter Earnings

Key Takeaways

• FedEx is set to report its latest quarterly earnings after a tough stretch amid weakened demand.
• The company has been working to recover after a slowdown in demand for its services.
• FedEx announced plans to restructure and cut costs by $4 billion by 2025.

FedEx (FDX) is gearing up to report third-quarter earnings for its 2024 fiscal year after facing a challenging period due to weakened demand. In December, the company reported second-quarter results that missed estimates, citing “volatile macroeconomic conditions” and lowered guidance for the second consecutive quarter, resulting in a significant drop in its stock price.

For the upcoming third quarter, analysts are expecting FedEx to post revenue of $22.02 billion, a decline from the previous quarter and the same period last year. The company is projected to report net income of $879.5 million and diluted earnings per share (EPS) of $3.50, down from the prior quarter but higher than the same period a year earlier.

During the second-quarter earnings call, FedEx cautioned that its revenue could continue to be under pressure due to factors negatively impacting customer demand for its services across its transportation companies.

Key Metric: Average Daily Volume

One key metric to watch for FedEx is the average daily volume (ADV) of FedEx Express packages handled in the U.S. The company has reported nine consecutive quarters of year-over-year declines in ADV. Additionally, revenue and ADV reached record highs during the pandemic but have been on a downward trend or growing more slowly in recent quarters.

FedEx has been adjusting to a slowdown in revenue following the pandemic boom. In its second-quarter earnings report, the company revised its guidance for 2024, forecasting a low-single-digit percentage decline in full-year sales compared to the previously anticipated flat growth.

Competitor United Parcel Service (UPS) has also faced challenges with declining shipping demand and integrating changes related to a contract agreement reached with the Teamsters union last summer, avoiding a strike by over 300,000 UPS employees.

Business Spotlight: Restructuring Effort

FedEx embarked on a restructuring plan in April 2023 aimed at cutting $4 billion in costs by 2025. The plan involves consolidating FedEx Ground, Express, and Services under the Federal Express Corp. umbrella while maintaining FedEx Freight as a separate entity. Investors will be keen on updates regarding the progress of this restructuring and its long-term implications.

As part of the cost-cutting initiative, FedEx reduced its global headcount by approximately 25,000 employees. Despite the challenges, FedEx shares have seen a 0.4% increase year-to-date and have gained about 24% over the past 12 months.

In conclusion, FedEx’s upcoming third-quarter earnings report will provide valuable insights into how the company is navigating the current economic landscape and its efforts to adapt to changing market conditions. Investors will be closely monitoring key financial metrics and updates on the restructuring plan as they assess FedEx’s performance and outlook moving forward.

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