FDX Preview- Will DRIVE savings boost results?

FedEx (FDX) is set to report its Q1 FY25 earnings after the market closes today, with analysts expecting adjusted EPS of $4.76 and revenue of $21.93 billion. This earnings report is particularly meaningful as it will be the first opportunity to assess the impact of FedEx's ongoing DRIVE initiative, which aims to generate $2.2 billion in structural cost savings in FY25 and an additional $2 billion through Network 2.0 between FY25 and FY27. Additionally, analysts are watching closely for any updates to the company's FY25 guidance, which currently projects EPS between $20.00 and $22.00, with revenue growth in the low-to-mid single digits.

The DRIVE initiative is a significant factor in this earnings report, as investors will be looking for evidence of cost savings and efficiency improvements, especially given the sub-seasonal demand backdrop that has pressured FedEx's financial performance. Last quarter, FedEx managed to report revenue growth after several quarters of declines, and the market is eager to see if the company can sustain this positive momentum while continuing to streamline its operations.

Another aspect to watch is FedEx's Freight segment, which, despite being the company's smallest, has the highest operating margin at 20%. The company has already announced a review of this segment, with potential outcomes including a spin-off or sale. Investors will be keen to hear any updates on this front, as the Freight segment's future could have significant implications for FedEx's overall profitability and strategic direction.

In terms of market expectations, FedEx typically beats on EPS but has struggled with revenue misses in the past. However, last quarter's modest revenue beat has set a hopeful tone for this earnings report. The company’s outlook on the demand environment will be crucial, especially in light of the recent acceleration in international air cargo demand from Asia, which could bolster FedEx's performance in the coming quarters.

Additionally, the upcoming expiration of FedEx's contract with the U.S. Postal Service on September 29 could impact volumes in the short term, as the company anticipates volumes to be near contract minimums until then. How FedEx plans to navigate this transition period will be another key point of interest during the earnings call.

Overall, this earnings report will provide valuable insights into FedEx's ability to execute on its cost-saving initiatives, manage demand fluctuations, and strategically position itself for future growth. Given the company's recent stock performance and the importance of the DRIVE initiative, investors will be closely monitoring the results and management commentary for indications of FedEx's trajectory in FY25.

FedEx (FDX) ended its fiscal year 2024 on a positive note, with a solid Q4 performance that exceeded expectations. The company posted a slight year-over-year revenue increase of 0.8% to $22.11 billion, marking the first time in six quarters that FedEx achieved revenue growth. This was especially notable given the challenging demand environment faced by the industry throughout the year. Despite this environment, FedEx managed to deliver full-year adjusted earnings towards the higher end of its guidance, up 19% year-over-year. Investors were particularly encouraged by the modest revenue growth and the fact that the company reported its first top-line beat after eight consecutive misses.

Looking ahead, FedEx provided guidance for FY25, forecasting adjusted EPS of $20.00-22.00 with revenue growth in the low-to-mid single digits, aligning with market expectations. The company expects revenue growth to be driven by improving trends in U.S. domestic parcel and international export demand, along with benefits from better base rates and increased fuel surcharges. Additionally, FedEx is reviewing its Freight segment, which, despite significant demand weakness, remains the company's highest-margin segment. The potential sale of this segment could impact growth and margins, but investors seem optimistic about the strategic moves being considered.

The news drove shares from $250 to $300 in reaction. It has been able to hold those levels over the past few weeks. A solid performance is a must in order to maintain ground above the $300 area.

Overall, the positive earnings report and future outlook have driven a strong market response, with FedEx shares rising sharply following the announcement.