Shares in package delivery giant FedEx (FDX 1.48%) rose 16.5% in the week to Friday morning, according to data provided by S&P Global Market Intelligence. The increase came in the wake of a well-received set of fourth-quarter 2024 earnings after the close of trading on Tuesday.
FedEx beats expectations
The company beat Wall Street analysts' expectations for revenue and earnings, and management's guidance for its financial 2025 contains several assumptions that signal its end markets are starting to improve.
For example, management expects low- to mid-single-digit revenue growth in 2025, which will be "largely volume-driven." That's a good sign because the package delivery market is currently in a state of overcapacity, so growing volumes imply that demand is starting to catch up with supply -- and pricing should improve in time.
Moreover, while the trading environment remains challenging and competitive, management believes it's "rational." FedEx reported revenue-per-package growth in its U.S. and overall operations -- a good result while package delivery volumes declined 3.5% in the U.S. and 1.1% overall in the quarter.
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Cost management helping
With moderate growth on the way, FedEx investors have cause for optimism because management is dealing with current conditions quite well. It cut $1.8 billion worth of structural costs in 2024, helping adjusted operating margins to improve from 6% in 2023 to 7.1% in 2024. Full-year adjusted operating income improved to $6.24 billion from $5.37 billion in 2023.
FedEx has demonstrated its ability to improve profitability in a challenging trading environment. With some better end markets in financial 2025, management is guiding toward $20 to $22 in adjusted earnings per share (EPS), the midpoint of which puts FedEx attractively valued at 14 times 2025 earnings.
