FedEx often keeps Wall Street on its toes with its earnings reports. In its second-quarter report from December 2024, the global transportation, e-commerce, and business services provider shocked investors by announcing plans to split into two publicly traded companies: FedEx and FedEx Freight. The news sent the company’s shares soaring in premarket trading the following day, as investors hoped the move would reignite its stagnant sales.
After the market closed on March 20, FedEx once again surprised Wall Street with its revenue and earnings outlook for fiscal year 2025, which ends in May.
Diluted earnings per share are expected to be between $15.15 to $15.75, down from the previous forecast of $16.45 to $17.45 per share. This is the second time in the fiscal year the company has cut its earnings forecast, citing economic weakness.
Cutting revenue and earnings outlooks reduces a company’s future free cash flow and drives equity valuations lower, prompting a negative response from Wall Street. As of 11:45 a.m. ET on March 21, FedEx’s shares were down by 9.14 percent. The stock has fallen 20.46 percent year to date and 15.51 percent over the past 12 months, underperforming the broader market.
Management blamed its downward revision on weakness in the U.S. industrial economy.
“Our team continues to make strong progress on reducing our cost to serve and improving our operational performance—specifically at Federal Express—supporting operating income and earnings growth,” said John Dietrich, FedEx Corp. executive vice president and chief financial officer.
“Our revised earnings outlook reflects continued weakness and uncertainty in the U.S. industrial economy, which is constraining demand for our business-to-business services. Despite this uncertainty, I’m confident we are well positioned to execute on our transformation initiatives and create stockholder value.”
Sales were $22.2 billion for the quarter, up slightly from $21.7 billion a year earlier, and operating income was $1.29 billion, up from $1.24 billion.
The quarter’s results were boosted by a net tax benefit of $46 million ($0.19 per diluted share), corporate restructuring, and revisions to prior-year estimates for actual tax return results.
In addition, lower costs due to DRIVE program initiatives and higher volume boosted operating income at the Federal Express segment. These favorable factors were partially offset by higher wage and purchased transportation rates and the expiration of the U.S. Postal Service contract.The situation was quite different in the FedEx Freight segment, where reduced weight per shipment and fewer shipments dragged down operating income.
As a result, the “weakness in the industrial economy,” cited by Mr. Dietrich as the source of the company’s woes, must be attributed to other factors.
Georgios Koimisis, an associate professor of economics and finance at Manhattan University, believes that FedEx’s drop in demand, especially from business customers, indicates that companies across industries are cautious, likely due to high interest rates, cost pressures, or weaker demand.
“Fewer shipments and lighter loads imply that businesses may be ordering less inventory or delaying investments, maybe because of uncertainty,” he told The Epoch Times via email. “This slowdown directly hits FedEx’s freight business, where heavier and more frequent shipments usually bring more profits. ”
