On Friday, BofA Securities adjusted its outlook on FedEx (NYSE: FDX), reducing the price target to $308 from the previous $345 while sustaining a Buy rating on the stock. The firm's analysis highlighted several challenges faced by FedEx, including a decline in business-to-business volumes due to macroeconomic weakness, which has affected margins, and lower-than-expected cost savings from the company's DRIVE initiative. Despite these setbacks, the analyst maintained a positive stance on the stock, citing FedEx's proactive measures such as increased surcharges and a general rate increase of 5.9%.
FedEx's shares experienced an 11% drop in after-hours trading following the announcement of financial results that fell short of expectations. The company reported an adjusted first-quarter earnings per share (EPS) for fiscal 2025 of $3.60, which represents a 21% decrease year-over-year and is below the anticipated $4.76 and the consensus estimate of $4.77. Additionally, FedEx has revised its adjusted EPS guidance for fiscal 2025 to a range of $20.00 to $21.00, down from the previous range of $20.00 to $22.00.
The company also adjusted its revenue growth forecast for fiscal 2025 to the low single digits, a decrease from the prior estimate of low-to-mid single digits. FedEx has been grappling with various pressures, including a weakening industrial economy impacting its business-to-business sector, the growth of e-commerce with lighter-weight shipments, and a shift towards deferred services.
CFO John Dietrich commented on the company's financial performance, acknowledging that the pace of structural cost savings did not meet expectations in the first quarter of fiscal 2025, with $390 million in DRIVE savings. However, he reaffirmed the company's commitment to achieving its $2.2 billion savings target by fiscal 2025. The Federal Express segment, which accounts for 85% of FedEx's revenue, is expected to see margin expansion sequentially.
FedEx is also navigating potential external factors, such as the anticipated airfreight benefit from a potential East Coast port strike scheduled for October 1. Moreover, the firm anticipates further clarity by December regarding the potential spin-off, sale, or other actions related to the company's Freight segment.
In other recent news, FedEx Corporation (NYSE:FDX)'s first-quarter fiscal year 2025 earnings fell short of expectations by approximately 24%, leading BMO Capital Markets to reduce its price target for the company to $300 from $325. FedEx anticipates its revenue growth to be at the lower end of its previously forecasted range, due to challenges such as muted demand, an unfavorable shift in product mix, and declining international yields. However, FedEx's DRIVE initiative is still expected to yield $2.2 billion in structural cost savings during the fiscal year.
In response to these developments, FedEx is implementing strategic responses, including a general rate increase of 5.9% in January, along with new demand surcharges. The company's adjusted EPS outlook for FY '25 is narrowed to $20 to $21, with low single-digit revenue growth anticipated. Despite a year-over-year decline in B2B volumes and a slight decrease in revenue, FedEx remains focused on achieving significant savings through its DRIVE initiative and enhancing profitability through pricing actions.
FedEx also reported a 9% rise in international export package volumes, while FedEx Freight saw a 3% decline in weight per shipment and average daily shipments. These recent developments reflect the company's ongoing efforts to navigate a challenging demand environment and achieve its cost-saving goals. BMO Capital's revised price target and maintained Market Perform rating suggest a cautious stance on the company's financial performance.
InvestingPro Insights
In light of the recent adjustments to FedEx's financial forecasts and BofA Securities' revised price target, it's beneficial to consider some real-time data and insights from InvestingPro to further inform investors about the stock's potential. FedEx is currently trading at a price-to-earnings (P/E) ratio of 18.54, suggesting a premium valuation relative to near-term earnings growth. Despite a slight revenue decline over the last twelve months, as indicated by a -2.73% revenue growth, FedEx has maintained a strong gross profit margin of 27.32%. This resilience in profitability is also evident in the company's robust return over the last three months, with a price total return of 19.31%.
Moreover, FedEx has demonstrated a consistent commitment to shareholders, having raised its dividend for 3 consecutive years and maintained dividend payments for 23 consecutive years. The current dividend yield stands at 1.85%, with a notable dividend growth of 9.52% over the last twelve months. Such financial discipline and shareholder return strategies are key considerations for investors, especially in a challenging economic climate.
For those seeking further insights, InvestingPro offers additional tips on FedEx, including the company's status as a prominent player in the Air Freight & Logistics industry and predictions that it will remain profitable this year. To explore these and other expert tips, investors can visit InvestingPro, where several more tips are available to guide investment decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.