FedEx shares pop on hefty profit beat, UPS customer wins

By Lisa Baertlein and Priyamvada C

(Reuters) -FedEx raised the lower end of its full-year profit forecast on Wednesday after a cost-cutting quarter when it poached customers from rivals UPS and Yellow (OTC:).

FedEx (NYSE:) shares jumped 5.7% to $264.60 in extended trading after the Memphis-based company said it now expects adjusted fiscal 2024 earnings of $17 to $18.50 per share, increasing the low end of the range by 50 cents from its prior forecast.

The global delivery firm reported fiscal first-quarter adjusted earnings of $4.55 per share, blowing past Wall Street expectations of $3.73 per share, according to LSEG data.

Tumultuous labor talks at direct competitor United Parcel Service (NYSE:) and the bankruptcy of trucking firm Yellow created market share opportunities in the U.S. transportation industry, FedEx CEO Raj Subramaniam said on a conference call to discuss the results.

“We captured upside as a result of these one-time events,” he said.

Operating income in FedEx’s Ground division jumped 59% for the quarter ended Aug. 31. That unit benefited from UPS customers shifting packages to alternate carriers ahead of the Aug. 1 expiration of its contract covering about 340,000 United Brotherhood of Teamsters-represented workers.

UPS executives last month said its customers shifted 1 million packages per day to other providers, resulting in about $200 million of lost sales. FedEx said it added about 400,000 to its average daily volume by the end of August.

Memphis, Tennessee-based FedEx also took advantage of the demise of Yellow, a dominant player in the less-than-truckload trucking sector in which FedEx Freight is a major player. FedEx said it added about 5,000 average daily shipments after the bankruptcy. Nevertheless, the Freight unit’s operating income fell 26% during the quarter.

Operating income in its largest Express division rose 18% for the quarter, as cost cuts from parking aircraft and layoffs more than offset a 9% revenue decline due to soft global demand.

FedEx and other shipping companies are grappling with a global downturn and racing to adjust costs to match diminished demand. As a result, the company now expects full-year revenue to be flat versus a year ago, compared with its prior projection of flat to low-single-digit percent revenue growth.

Under pressure from investors including activist D.E. Shaw, FedEx last year slashed its workforce, retired and parked planes, shuttered offices and pared back profit-sapping Sunday deliveries in a bid to cut $4 billion in permanent costs by the end of its 2025 financial year. It also began merging its separately operated divisions to better compete with more cost-conscious UPS.

In a nod to shareholders, FedEx said it would repurchase $1.5 billion of common stock this fiscal year ended May

(Reporting Lisa Baertlein by in Los Angeles; Additional reporting by Priyamvada C in Bengaluru; Editing by Bill Berkrot)