FDX slides 10% in after hours as DRIVE initiatives fail to offset operational challenges
1min read FedEx (FDX) reported disappointing Q1 FY25 results, with adjusted EPS coming in at $3.60, significantly missing the consensus estimate of $4.76. Revenue also fell short of expectations, totaling $21.6 billion versus the anticipated $21.93 billion. The company revised its FY25 earnings guidance downward, now expecting adjusted EPS between $20.00 and $21.00, compared to the previous range of $20.00 to $22.00, with revenue growth forecasted in the low single digits.
This earnings miss is particularly disappointing given the expectations for improved profitability driven by lower oil prices and the company's DRIVE cost-saving initiatives. Despite efforts to streamline operations, higher operating expenses and a shift in demand from priority to deferred services weighed heavily on the quarter's results. As a result, FedEx's stock has tumbled below the $300 level, testing critical support at its 200-day simple moving average (SMA) of $267. This level is crucial for the stock to hold; otherwise, it could signal further downside risk.
FedEx's earnings report also highlighted operational challenges, including decreased operating income across its major segments, particularly in the Federal Express segment, due to lower U.S. domestic priority package volume and increased costs. The company's ongoing DRIVE initiative, which aims to reduce structural costs, partially offset these negative factors, but not enough to meet investor expectations.
In addition to the earnings miss, FedEx's Q1 results were impacted by external factors such as one fewer operating day and a shift in service mix, which constrained yield growth. The company completed a $1 billion share repurchase during the quarter, which provided a modest EPS boost, but the overall financial performance still fell short. Despite these challenges, FedEx remains committed to its long-term strategy, including the successful integration of FedEx Ground and FedEx Services into Federal Express.
Looking forward, FedEx's ability to navigate the current market dynamics will be closely watched, particularly as it continues to streamline its network and execute on its cost-saving initiatives. The company reaffirmed its forecast for $2.2 billion in permanent cost reductions from the DRIVE program and capital spending of $5.2 billion for FY25. However, the lowered earnings guidance and revenue growth expectations indicate that the path forward may be more challenging than previously anticipated.
Investors should prepare for potential volatility in FedEx's stock, especially given the sharp decline post-earnings and the stock's history of significant swings around earnings announcements. With the stock now trading below key technical levels, the coming sessions will be critical in determining whether FedEx can stabilize and regain investor confidence.