FedEx Corporation (FDX), a leading provider of transportation, e-commerce, and business services, plans to repurchase $5 billion worth of its shares as its cost-cutting measures contribute to increased profits, leading to a significant surge in the company's stock, marking its most substantial gain in a year.
FDX’s shares have soared more than 18% over the past month and nearly 30% over the past year.
This newly authorized $5 billion share repurchase program comes in addition to the existing $600 million available for repurchase under the 2021 authorization. During the third quarter of fiscal 2024, the courier company completed a $1 billion accelerated share repurchase (ASR) transaction. About 4.1 million shares were delivered under the ASR agreement.
FedEx also intends to repurchase an additional $500 million of common stock during the fourth quarter, bringing the fiscal 2024 buyback total to $2.5 billion. The company’s cash on-hand was $5.60 billion as of February 29, 2024.
“DRIVE is having a real impact, supporting both operating income growth and margin expansion,” said John Dietrich, FDX’s executive vice president and chief financial officer. “As we look ahead, we’re focused on continuing to deliver on DRIVE and our commitments to support long-term shareholder returns.”
Third-Quarter Earnings Beat
For the third quarter ended February 29, 2024, FDX reported revenue of $21.74 billion, slightly missing the analysts’ estimate of $22.08 billion. Despite lower revenue, third-quarter income and margin improved, mainly due to the execution of the company’s DRIVE program and the continuous focus on revenue quality.
FedEx’s non-GAAP operating income grew 16.2% year-over-year to $1.36 billion. Its non-GAAP net income came in at $966 million, an increase of 11.7% year-over-year. The company posted a non-GAAP EPS of $3.86, compared to the consensus estimate of $3.48 and up 13.2% from the previous year’s quarter.
“FedEx delivered another quarter of improved profitability in what remains a difficult demand environment, reflecting outstanding service and continued benefits from DRIVE,” said Raj Subramaniam, FDX’s president and CEO.
“We are making meaningful progress on our transformation, while strengthening our value proposition and improving the customer experience. I've never been more confident in our path ahead as we build a more flexible, efficient, and intelligent network,” Subramaniam added.
Cost-Cutting Efforts
Over the past year, workforce reductions at FedEx totaled around 22,000 jobs, said CFO John Dietrich on a conference call with analysts. As per the company, most of these job cuts have come through attrition.
For the full-year fiscal 2024, FDX plans to reduce its planned capital spending to $5.4 billion, compared to the previously announced $5.7 billion. The logistics company expects permanent cost reductions related to the DRIV program of $1.8 billion in 2024.
In April last year, FedEx announced restructuring its business segments into one unit, embarking on a cost-cutting plan of $4 billion by 2025. The shipping giant expects the new operating structure to be entirely implemented by June 2024, bringing FedEx Express, FedEx Ground, FedEx Services, and other FedEx operating companies under the Federal Express Corporation umbrella.
Meanwhile, FDX’s Board of Directors approved an increase of 10% in its annual dividend of $0.44 per share to $5.04 for the fiscal year 2024. Its annual dividend translates to a yield of 1.78% at the prevailing share price. Moreover, the company’s dividend payouts have grown at a CAGR of 14.2% over the past five years.
Bloomberg Intelligence analyst Lee Klaskow said, “FedEx gave investors plenty to celebrate especially as it relates to showing progress towards reducing structural costs and its announced $5 billion share repurchase program.”
Bottom Line
Despite a challenging demand environment, FDX delivered another quarter of enhanced profitability, reflecting outstanding service and continued benefits from its DRIVE program. FedEx’s Board of Directors also announced a new $5 billion share repurchase program as a continued cost-saving initiative to help drive profits.
FedEx's ambitious stock buyback plan is a testament to the company's confidence in the effectiveness of its cost-cutting initiatives and restructuring efforts, potentially suggesting optimistic long-term growth prospects.
TD Cown analyst Helane Becker said in a research note that the last reported results marked the third consecutive quarter in which FDX’s operating income grew despite dropping revenue, indicating the logistics company’s cost-cutting efforts are working.
FedEx CEO Raj Subramaniam currently oversees a comprehensive restructuring of the company’s delivery networks. A significant part of this strategic plan has involved reducing the workforce by tens of thousands of jobs. The restructuring plan, announced in April last year, represents a departure from founder Fred Smith’s long-standing strategy of maintaining a two-network approach.
“We are making meaningful progress on our transformation,” Subramaniam said. The overhaul plan (DRIVE program) is expected to make permanent cost reductions of $1.8 billion in fiscal 2024.
The results from the plan demonstrate FedEx’s efforts to revitalize its Express division, which has faced challenges due to the shift by consumers and businesses toward sending more mail and packages via ground. FedEx reported that both its Express and Ground divisions saw considerable benefits from lower structural expenses during the quarter.
On March 22, 2024, Evercore ISI analyst Jonathan Chappell maintained a Buy rating on FDX and set a price target of $351. In addition, FedEx got a Buy rating from Deutsche Bank’s Amit Mehrotra.
Based on the recent insider activity of 48 insiders, corporate insider sentiment is optimistic about FDX stock. Over the past year, there were about 32 open market insider buys. Most recently, in January this year, Richard W. Smith, President and CEO of Airline and International, FedEx, bought 2,000 shares for a total of $287,080.
Given its outstanding financial performance and bright growth prospects, investing in FDX for potential gains could be wise.
