FedEx Announces $5 Billion Share Buyback as Profit Surges, Shares Soar

Published: Friday, March 29, 2024

FedEx Corp. plans to buy back $5 billion of its shares as cost-cutting efforts help boost profits, sending the courier’s stock soaring the most in a year.

Adjusted earnings of $3.86 a share for the third quarter topped Wall Street’s expectations, as did operating income and operating margin, FedEx revealed late Thursday. Sales of $21.7 billion fell slightly short of estimates compiled by Bloomberg.

The results marked the third straight quarter that FedEx’s operating income rose despite falling revenue, suggesting the company’s “cost-cutting initiative is working,” TD Cowen analyst Helane Becker said in a research note.

FedEx shares rose 10% after regular trading began Friday in New York, the biggest intraday gain since March 2023. Competitor United Parcel Service Inc. advanced as much as 2.3%. FedEx had gained 4.7% this year through Thursday’s close, trailing the broader market.

Chief Executive Officer Raj Subramaniam is in the process of restructuring the company’s delivery networks, part of a sweeping plan that has included shrinking the workforce by tens of thousands of jobs. The overhaul, announced last year, marks a shift from the strategy of founder Fred Smith, who started FedEx in 1971 and long defended a two-network approach as a competitive advantage.

“We are making meaningful progress on our transformation,” Subramaniam said in a statement. The overhaul plan has made permanent cost reductions of $1.8 billion.

The results reflect efforts to turn around its Express division, which has struggled amid a shift by consumers and businesses toward sending more mail and packages via ground. Both Express and the Ground divisions benefited from lower structural costs in the quarter, FedEx said.

Job Reductions

Workforce reductions over the last year have totaled nearly 22,000 jobs, Chief Financial Officer John Dietrich said on a conference call with analysts. Most of the cuts have come via attrition, according to the company.

“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,” said Bloomberg Intelligence analyst Lee Klaskow.

FedEx is “feeling very positive” about contract negotiations underway with the US Postal Service, ahead of the current pact’s expiration in September, Chief Customer Officer Brie Carere said.

“I think we are days or weeks away from knowing if we’ll have a contract, not months,” Carere said on the call.

The better-than-expected performance in the third quarter came despite national service disruption in January due to poor winter weather.

FedEx on Thursday also narrowed its profit forecast for this fiscal year. It now sees adjusted earnings of $17.25 to $18.25 a share, compared with an earlier range of $17 to $18.50.

The new buyback comes in addition to an existing $600 million share repurchase plan that remains under a 2021 initiative.