Yahoo Finance FedEx Poised for 'Solid' Quarterly Earnings But Faces Headwinds in Fiscal 2025, UBS Says
FedEx (FDX) is likely to report "solid" fiscal fourth-quarter earnings, though the parcel delivery company faces several challenges that are expected to dampen the impact of its cost-saving initiative in 2025, UBS Securities said Tuesday.
The company is scheduled to post its fourth-quarter results June 25. UBS expects earnings to grow nearly 11% year over year to $5.49 a share, better than Wall Street's $5.33 view, the brokerage said in a note. The firm pegs revenue growth at 2%, led by a 5.4% rise in freight. Ground and express sales are expected to rise 3.3% and 0.6%, respectively, according to UBS.
Although the company's comments have indicated muted activity over the last several months, UBS' analysis suggests the fourth-quarter EPS outlook sets "a reasonable bar," analysts, including Thomas Wadewitz, said. The brokerage said it assumes 100 basis points of sequential margin improvement in express, compared with the 10-year average of 370 basis points.
The analysts said they still expect a "challenging" business backdrop for FedEx, especially in the express segment. However, the company's DRIVE program is likely to support improvement in operating ratios in the ground segment, according to the note.
"While the targeted DRIVE cost savings of $2.2 (billion) is large, we also anticipate multiple offsets including from the loss of the (US Postal Service) contract, higher incentive compensation, lower international yields and two fewer operating days," the analysts said.
DRIVE is the company's effort to consolidate its operating companies into a single, integrated air-ground network, which it plans to fully implement in June.
UBS expects express margins and volume growth to remain muted on an annual basis through 2024 "as operational changes should take longer than in ground while the macro slows growth prospects," according to the note.
The brokerage cut its fiscal 2025 EPS outlook to $21.10 from $21.72. The updated figure still reflects annual growth of about 18%, UBS said. Full-year revenue growth is now projected at 3.4%, down from the prior projection of 4.2%.
The brokerage lowered its price target on the FedEx stock to $333 from $340, with a buy rating. The shares closed 0.9% lower on Tuesday.
