©Reuters. FILE PHOTO: A Federal Express truck is shown in Los Angeles, California, U.S., October 16, 2019. REUTERS/Mike Blake/File Photo
By Lisa Baertlein and Aishwarya Jain
(Reuters) – FedEx on Thursday narrowed its earnings forecast for fiscal 2024, raising lows and lowering highs, as cost cuts take hold and stock buybacks help offset lower business at its biggest customer , the United States Postal Service.
Shares of the package delivery company jumped 13% in extended trading after operating margin at its largest unit, Express, rose 2.5% in the fiscal February quarter from 1.2% in one year ago.
Its margin was helped by measures including parking planes, reducing flight hours and other efforts to keep fewer and fuller planes flying.
Investors have been pressuring FedEx (NYSE:) CEO Raj Subramaniam to improve the Express airline’s profitability as it enters contract renewal talks with USPS and job discussions with its pilots.
“The positive share price reaction is almost strictly a function of Express margins handily exceeding expectations,” as cost cuts take hold amid a still weak economic backdrop, said Evercore ISI analyst Jonathan Chappell.
Memphis-based FedEx now expects fiscal 2024 earnings of $17.25 to $18.25 per share, compared with its previous forecast of $17 to $18.50 per share.
According to LSEG data, adjusted profit for the quarter ended Feb. 29 rose to $966 million, or $3.86 per share, beating analysts’ average estimate of 41 cents per share. Stock buybacks contributed 9 cents to the upside last quarter.
FedEx said it plans to repurchase $500 million of its stock in the current quarter, and its board of directors approved a new $5 billion share repurchase program.
FedEx reported quarterly revenue of $21.7 billion, down from $22.2 billion last year.
The company’s overnight express delivery unit had struggled with declining volumes as the USPS shifted packages from higher-margin air services to cheaper ground services.
FedEx will know “in the next few days or weeks” whether it has a new contract with USPS, Brie Carere, FedEx’s chief customer officer, said on a call with analysts.
The USPS contract expires September 29.