Cost cutting helps Fedex rebound

There’s no question this was the year of the tech rebound. In 2022, investors looked elsewhere for better returns, but this year the sector was the top performer.

At the time of writing, the S&P 500 Information Technology Index was ahead 51% year-to-date, eclipsing all other sectors by a wide margin. Technology comes in many forms. One example of that is FedEx.

While we think of FedEx as a mailman offering door-to-door delivery of online purchases for Amazon, it is really a logistics company. It applies technology to register, ship, and track packages by road, rail, and air on a global scale in the most efficient way.

FedEx (NYSE: FDX) has operations in 220 countries. It has 650 airports in its network and employs 440,000 people. At the recent price of $266, its shares have gained 53% year-to-date (dollar figures in US currency).

Pre-pandemic, FedEx was the largest cargo carrying airline in the world. Post-pandemic, it has solidified that position. The pandemic created unprecedented demand for the shipping of consumer goods purchased online as many people worked from home. With reopening, the shares dropped as consumers switched from purchasing goods to out of home services such as leisure and travel. Worries about the global economy and interest rates, and the rising cost of fuel were also drags on its performance.

FedEx responded by cutting costs and investing in technology to become more efficient. In its fiscal year that ended on May 31, FedEx slashed 29,000 jobs, took 18 planes out of service, and cut back on costly Sunday deliveries. It is aiming to trim $4 billion in annual costs by the end of its 2025 fiscal year. 

In its first quarter of 2024, ended Aug. 31, FedEx’s revenue fell to $21.7 billion, down 7% from a year earlier. The company has accelerated its cost cutting and gained new customers from the bankruptcy of trucking firm Yellow. It also poached customers from rival UPS as its customers worried about a possible strike at that company.

But while revenue fell, earnings before extraordinary items rose 28%, to $1.2 billion in the quarter. Earnings per share were 32% higher beating analyst estimates.

FedEx continues to reward stockholders. It has an active share buyback program including $500 million in the latest quarter. It plans to spend another $1.5 billion on buybacks this year.  It raised its dividend with the July payment by 9.6% quarterly, to $1.26 a share. The new rate yields 1.9%.