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    FedEx Corp (FDX)

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    Business Description

    FedEx Corporation provides a broad portfolio of transportation, e-commerce, and business services, offering integrated business solutions through its flexible, efficient, and intelligent global network. The company operates primarily through two major service lines: Federal Express and FedEx Freight. Federal Express, which includes the operations of FedEx Ground and FedEx Services after their merger into Federal Express on June 1, 2024, is the world's largest express transportation company and a leading provider of small-package ground delivery services. It offers a range of rapid, reliable, time- and day-definite delivery services to more than 220 countries and territories, contributing significantly to the company's revenue .

    1. Federal Express - Provides express transportation and small-package ground delivery services, offering rapid, reliable, time- and day-definite delivery to over 220 countries and territories.
      • FedEx Ground - Offers small-package ground delivery services.
      • FedEx Services - Provides support services integrated into Federal Express operations.
    2. FedEx Freight - Delivers less-than-truckload (LTL) freight transportation services across North America, focusing on network efficiency and service delivery.
      • FedEx Custom Critical - Offers time-critical transportation services.

    Q2 2025 Summary

    Initial Price$297.75August 29, 2024
    Final Price$302.67November 29, 2024
    Price Change$4.92
    % Change+1.65%

    What went well

    • Significant Progress in Network 2.0 Implementation Leading to Cost Reductions: FedEx is making substantial progress on its Network 2.0 rollout, having optimized 200 stations so far, including 130 in Canada. They are seeing a 10% reduction in Pickup and Delivery (P&D) costs where Network 2.0 is fully implemented. By the end of FY '25, they expect to have approximately 250 stations integrated, with the major lift occurring in FY '26.
    • Strong Capital Returns to Shareholders: FedEx completed $1 billion in share repurchases in Q2, bringing the total to $2 billion for the year, with an additional $500 million planned for the remainder of the year. This reflects confidence in the company's future prospects and financial strength.
    • Effective Pricing Strategy Amid Competitive Market: Despite a competitive market, FedEx is executing well on its pricing strategy by being disciplined in capturing surcharges that drive a disproportionate amount of cost, including peak surcharges, large package surcharges, and rural surcharges. They highlight having the best value proposition in U.S. rural markets, which is important for customers who require comprehensive coverage.

    What went wrong

    • FedEx lowered its FY '25 adjusted EPS outlook to $19-$20 from the prior range of $20-$21 due to expected volumes and revenue not materializing, especially in its most profitable priority and commercial services.
    • Weakness in the global industrial economy and a competitive pricing environment are constraining demand, leading to pressure on base rates and yields, with some customers trading down to lower-yielding services.
    • Significant cost savings from Network 2.0 integration are not expected until FY '26 and FY '27, delaying the realization of major efficiencies and benefits.

    Q&A Summary

    1. Updated EPS Guidance
      Q: What led to the adjustment in EPS guidance and what's the outlook?
      A: Management adjusted the adjusted EPS range to $19 to $20 due to expected volumes and revenue not materializing as anticipated. They expect DRIVE savings to ramp up in Q3 and Q4, benefiting earnings. However, the USPS headwind will increase in Q3 before lessening in Q4, offsetting some benefits. Q4 remains traditionally the strongest earnings quarter and this dynamic is expected to hold despite having one fewer operating day.

    2. Freight Spin-Off
      Q: How will the separation of FedEx Freight impact the company and customers?
      A: The decision to separate FedEx Freight aims to increase shareholder value for both entities. A separation management office, led by Claude Russ, has been established to ensure a smooth transition. FedEx is adding 300 salespeople over the next year to address customer concerns and improve customer experience. Existing commercial agreements and contracts will be honored, and arrangements will be in place to maintain commercial, operational, and technological benefits between the two companies.

    3. Peak Season Performance
      Q: Can you provide more color on peak season volumes and outlook?
      A: December volumes are running ahead of forecast, especially after a strong Cyber Week. Peak surcharge capture in absolute dollar amounts will be up year-over-year. However, management does not expect the strong December performance to carry through the back half of the year. They anticipate improvement in domestic volumes at Ground, with Q2 being the trough for FedEx Freight revenue.

    4. Network 2.0 Rollout
      Q: What's the progress and impact of the Network 2.0 rollout?
      A: FedEx has optimized 200 stations so far under Network 2.0, including 130 in Canada. They will complete the Canada integration early in 2025, with Montreal being the last major market. The rollout has resulted in a 10% reduction in pickup and delivery costs where fully implemented. By the end of FY '25, approximately 250 stations are expected to be integrated.

    5. Capital Allocation Post-Spin
      Q: How will capital allocation and leverage change after the spin-off?
      A: Management does not anticipate changes in capital allocation before or after the separation. They remain focused on optimizing the existing business and returning significant adjusted free cash flow to shareholders. Share repurchase programs are continuing, with $1 billion completed in Q2 and a total of $2 billion planned for the full year. Capital allocation in the post-separation environment will be reviewed over the coming months.

    6. Revenue and Pricing Trends
      Q: What are the trends in revenue and pricing, and how is competition affecting them?
      A: The pricing environment remains competitive but rational. Yields are pressured due to the economy and mix changes, with growth in deferred services impacting margins. Base rates are under pressure, particularly due to weight declines across the portfolio. However, surcharge capture, especially peak surcharges, is contributing positively. Management is disciplined in obtaining surcharges that drive disproportionate costs, such as large package and rural surcharges.

    7. DRIVE Savings Initiatives
      Q: How are DRIVE savings impacting operations and future plans?
      A: The DRIVE program has evolved into how FedEx works, leading to disciplined execution and data-driven decision-making. DRIVE savings are expected to ramp incrementally in Q3 and Q4. Approximately $1.8 billion of the $4 billion in DRIVE savings results directly from new technologies. These savings support earnings growth assumptions despite a constrained revenue environment.

    8. USPS Contract Impact
      Q: How is the expiration of the USPS contract affecting financials?
      A: The USPS headwind is expected to increase in Q3 and lessen in Q4. FedEx is on track to reduce costs as planned, having taken out roughly 60% of U.S. domestic daytime flight hours, equating to 24% of total daytime hours. The headwind will more than offset the benefit of Cyber Week in Q3. This impact is expected to turn into a tailwind in FY '26.

    9. Tariffs and Geopolitical Risks
      Q: How might tariffs and geopolitical issues affect operations?
      A: Management is prepared to respond with agility to any changes due to tariffs. They are seeing some movement in volumes from ports, possibly indicating a slight pull-forward due to tariffs. FedEx is capable of adapting quickly due to their extensive global network and customer relationships.

    10. Network Integration Timing
      Q: What's the timeline for Network 2.0 integration, especially in major metros?
      A: By the end of FY '25, about 250 stations will be integrated. The major lift in integration is expected in FY '26, with significant progress continuing into FY '27. Lessons learned from each rollout are applied to improve subsequent implementations.

    Guidance Changes

    Annual guidance for FY 2025:

    • Adjusted EPS: $19 to $20 (lowered from $20 to $21 )
    • Revenue: Up or down low single digits (lowered from low single-digit growth )
    • DRIVE Savings: $2.2 billion (no change from prior guidance )
    • General Rate Increase: 5.9% (no prior guidance)
    • Operating Margin: Expansion at FedEx Express, contraction at FedEx Freight (no change from prior guidance )
    • Capital Expenditures: $5.2 billion (no change from prior guidance )
    • Share Repurchases: $2 billion (no change from prior guidance )

    Key Metrics

    View all financials →

    Executive Team

    NamePositionStart DateShort Bio
    Frederick W. SmithExecutive Chairman and Chairman of the BoardJune 1, 2022Frederick W. Smith is the founder of FedEx and has been serving as the Executive Chairman since June 1, 2022, and as the Chairman of the Board since 1998. He has been a director of FedEx since 1971 .
    Rajesh SubramaniamPresident and Chief Executive OfficerJune 2022Rajesh Subramaniam is the President and Chief Executive Officer of FedEx Corporation, a position he has held since June 2022. He has been with FedEx for over 30 years, serving in various leadership roles .
    Mark R. AllenExecutive Vice President, General Counsel and SecretaryOctober 2017Mark R. Allen has served as Executive Vice President, General Counsel and Secretary of FedEx since October 2017. He will transition to the role of Executive Vice President and Senior Advisor on September 24, 2024 .
    Tracy B. BrightmanExecutive Vice President – Chief People OfficerJune 2023Tracy B. Brightman is the Executive Vice President – Chief People Officer at FedEx, a position she has held since June 2023. She has been with FedEx Office since 2002, holding various positions in human resources and legal departments .
    Brie A. CarereExecutive Vice President – Chief Customer OfficerJune 2022Brie A. Carere has been serving as the Executive Vice President – Chief Customer Officer of FedEx since June 2022. She has held various positions in marketing, customer experience, and strategy with FedEx Express Canada .
    John W. DietrichExecutive Vice President and Chief Financial OfficerAugust 1, 2023John W. Dietrich is the Executive Vice President and Chief Financial Officer at FedEx. He joined FedEx as Executive Vice President and Chief Financial Officer-Elect on July 17, 2023 .
    Sriram KrishnasamyExecutive Vice President – Chief Digital and Information Officer and Chief Transformation OfficerJuly 1, 2024 (expected)Sriram Krishnasamy is the Executive Vice President – Chief Digital and Information Officer and Chief Transformation Officer at FedEx. He assumed the role of Executive Vice President – Chief Digital and Information Officer on July 1, 2024 .
    John A. SmithChief Operating Officer – United States and Canada, Federal ExpressJune 1, 2024John A. Smith has been the Chief Operating Officer – United States and Canada of Federal Express since June 1, 2024. He previously served as the President and Chief Executive Officer – U.S. and Canada Ground Operations .
    Richard W. SmithChief Operating Officer – International and Chief Executive Officer – Airline, Federal ExpressJune 1, 2024Richard W. Smith has been serving as the Chief Operating Officer – International and Chief Executive Officer – Airline of Federal Express since June 1, 2024. He was previously the President and Chief Executive Officer – Airline and International .

    Questions to Ask Management

    1. Given the persistent weakness in the industrial economy and B2B volumes, what concrete steps are you taking beyond cost-cutting to stimulate growth in these areas, and how realistic are your expectations for a moderate recovery in the second half of the fiscal year?

    2. With the impending $500 million headwind from the termination of the U.S. Postal Service contract, how do you plan to mitigate the impact on your revenue and operations, and what strategies are in place to replace this significant volume loss?

    3. Despite acknowledging a negative mix shift towards lower-yielding services and increased customer demand for deferred options, how confident are you that your recent pricing actions, including increased demand and fuel surcharges, will be effective in improving yields in a competitive environment where customers are trading down?

    4. You expect $600 million of savings from Europe as part of DRIVE, but given previous challenges in achieving profitability in that region, what gives you confidence in these projections, and are there contingency plans if these improvements don't materialize?

    5. In light of the weaker-than-expected top-line performance and challenges in adjusting your network quickly in response to demand shifts, what specific measures are you implementing to enhance your network flexibility, and how will this help prevent future earnings shortfalls if demand changes unexpectedly?

    Share Repurchase Program

    Program DetailsProgram 1Program 2
    Approval DateDecember 2021 March 2024
    End Date/DurationNot explicitly stated No specific end date
    Total additional amount$5.0 billion $5.0 billion
    Remaining authorization$64 million $3.1 billion
    DetailsRepurchases in open market or privately negotiated transactions Repurchases in open market or privately negotiated transactions

    Past Guidance

    Q1 2025 Earnings Call

    • Issued Period: Q1 2025
    • Guided Period: FY 2025
    • Guidance:
      1. Adjusted EPS: $20 to $21
      2. Adjusted Operating Profit: $7 billion
      3. Revenue Growth: Low single-digit rate
      4. Capital Expenditures: $5.2 billion
      5. Stock Repurchases: $1 billion in Q1, additional $1 billion in Q2
      6. Operating Margin: Expansion at Federal Express, modest decline at FedEx Freight
      7. Headwinds: $500 million from international export yield pressure, $300 million from two fewer operating days, $500 million from USPS contract termination
      8. DRIVE Savings: $2.2 billion
      9. Seasonality: Lower-than-normal in Q2, better-than-normal in fiscal second half .

    Q4 2024 Earnings Call

    • Issued Period: Q4 2024
    • Guided Period: FY 2025
    • Guidance:
      1. Adjusted EPS: $20 to $22
      2. Revenue Growth: Low to mid-single-digit growth
      3. Operating Income: 15% year-over-year increase
      4. Capital Expenditures: $5.2 billion
      5. Stock Repurchases: $2.5 billion, including $1 billion in Q1
      6. Dividend Increase: 10%
      7. Voluntary Pension Contributions: $800 million
      8. DRIVE Cost Savings: $2.2 billion
      9. Effective Tax Rate: Approximately 24.5%
      10. Business Optimization Costs: $560 million .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Adjusted EPS Range: $17.25 to $18.25
      2. Revenue: Low single-digit percentage decline
      3. Adjusted Operating Income: 17% increase
      4. Capital Expenditures: $5.4 billion
      5. Share Repurchases: Additional $500 million in Q4, total $2.5 billion for FY '24
      6. DRIVE Savings: $1.8 billion in FY '24, $2.2 billion in FY '25 .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Adjusted EPS: $17 to $18.50
      2. Revenue: Low single-digit percentage decline
      3. Capital Expenditures: Less than 6.5% CapEx to revenue
      4. Share Repurchases: Additional $1 billion
      5. Segment Margins:
        • Ground: Margin improvement
        • Freight: Strong margin, lower than FY '23
        • Express: Modest margin contraction
      6. Seasonality: Typical seasonality in Q3
      7. Cost Savings: $1.8 billion from DRIVE initiatives .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Amazon.com: Has established a network of hubs, aircraft, and vehicles and has expressed an intention to offer its internal delivery capabilities broadly to third parties .

    Latest news

    Recent developments and announcements about FDX.

    Financial Reporting

      Earnings Call

      ·
      Dec 20, 2024, 3:58 AM

      FedEx (FDX) recently released its second-quarter earnings call transcript, highlighting several key points:

      1. Revenue and Profit Performance: FedEx reported a 1% decline in consolidated revenue for the quarter, primarily due to a weak industrial economy. Despite this, the company managed to grow its adjusted operating profit by approximately $170 million, driven by strong commercial execution and cost-reduction actions .

      2. Management’s Forward Guidance: FedEx revised its fiscal year 2025 adjusted diluted EPS outlook to $19 to $20, down from the previous range of $20 to $21. This revision reflects tempered expectations for industrial production and continued competitive pricing pressures .

      3. Market Conditions and Strategic Initiatives: The company noted soft market conditions, particularly in the U.S. domestic market, but saw strong international growth. FedEx is focusing on its DRIVE initiative, which delivered $540 million in savings in Q2, and aims for $2.2 billion in savings for FY '25. The company is also implementing its Network 2.0 and Tricolor strategies to enhance operational efficiency and growth .

      4. Analyst Questions and Management Responses: Analysts inquired about the impact of the industrial economy on FedEx's Freight business and the company's strategic focus on volume versus pricing. Management acknowledged the pressures on the Freight segment but emphasized ongoing cost management and strategic investments in sales and technology to capture new opportunities .

      5. Operational Adjustments: FedEx is adjusting its operations in response to the expiration of a U.S. Postal Service contract, which has led to a significant reduction in U.S. domestic flight hours. The company is strategically matching capacity with demand to maintain service quality during peak seasons .

      Overall, FedEx is navigating a challenging economic environment with strategic initiatives aimed at cost reduction and operational efficiency, while adjusting its financial outlook to reflect current market conditions.

      Earnings Report

      ·
      Dec 19, 2024, 9:34 PM

      FedEx Corporation has released its earnings results for the second quarter of fiscal 2025, ending November 30, 2024. The company reported a diluted earnings per share (EPS) of $3.03 on a GAAP basis and an adjusted diluted EPS of $4.05 after excluding business optimization costs . The total revenue for the quarter was $22.0 billion, slightly down from $22.2 billion in the same quarter last year .

      Key Financial Highlights:

      • Operating Income: FedEx reported an operating income of $1.05 billion on a GAAP basis and $1.38 billion on an adjusted basis, reflecting the impact of cost reduction initiatives .
      • Net Income: The net income was $0.74 billion on a GAAP basis and $0.99 billion on an adjusted basis .
      • Operating Margin: The operating margin was 4.8% on a GAAP basis and 6.3% on an adjusted basis .

      Significant Trends and Developments:

      • FedEx's results were impacted by a weak U.S. domestic demand environment and the expiration of a U.S. Postal Service contract. However, the Federal Express segment saw improved operating results due to cost reduction benefits from the DRIVE program and higher base yields .
      • The FedEx Freight segment experienced decreased operating results due to fewer shipments and lower fuel surcharges, although these were partially offset by higher base yields .
      • FedEx completed $1 billion in share repurchases during the quarter, which positively impacted the EPS by $0.07 per share .

      Outlook:

      • FedEx has revised its fiscal 2025 earnings outlook, now expecting diluted EPS of $16.45 to $17.45 before MTM retirement plans accounting adjustments, and $19.00 to $20.00 after excluding business optimization costs .
      • The company anticipates flat revenue year-over-year, a revision from the previous forecast of a low single-digit percentage increase .
      • FedEx is committed to permanent cost reductions from the DRIVE transformation program and plans capital spending of $5.2 billion focused on network optimization and efficiency improvements .

      These results and strategic initiatives highlight FedEx's focus on transforming operations and improving financial performance despite challenging market conditions.