FedEx Corp. has permanently retired 22 Boeing 757-200 freighter aircraft as part of a downsizing campaign to better align the air fleet with slower parcel demand, the company announced Tuesday along with fourth-quarter earnings that exceeded analysts’ expectations.
The integrated logistics company said it took a $157 million impairment charge for permanently deactivating the 757 cargo jets along with seven engines. Last year’s fourth-quarter results included a $70 million write-off for the retirement of 18 MD-11 freighters and 34 related engines. The older 757s were expendable because they are less fuel-efficient than other planes operated by FedEx, which still has 92 of the narrowbody freighters in the fleet.
By the end of September, FedEx will no longer be the primary air cargo provider for the U.S. Postal Service after UPS recently won the five-year contract. Management said it expects volumes to be near the contract minimum until then as business transitions to UPS, but will then adjust its operations and network to optimize capacity with work flows.
The airline’s mainline fleet has shrunk from 417 aircraft in fiscal year 2022 to 389 as more aircraft are put out of service than are being added. The company is scheduled to receive from Boeing two factory-built 777 freighters in the next 12 months and 14 B767-300s over the next two years, according to the company’s latest statistics.
FedEx (NYSE: FDX) reported adjusted operating income increased 5.6% to $1.87 billion, with a 1% bump in revenue to $22.1 billion for the quarter ended May 31, underscoring the company’s progress in containing costs amid soft market conditions. Adjusted diluted earnings per diluted share was $5.41.
The corporation achieved $1.8 billion in structural savings last year and is targeting another $2.2 billion in savings from its transformation program in fiscal year 2025.
Management also said it is assessing the role of FedEx Freight in the company’s portfolio structure and how to improve shareholder value. The statement suggests the company may be open to the idea of spinning off the less-than-truckload division, among other options.
FedEx Express saw operating growth decline primarily due to flat revenue and lower international yields, partly offset by the success of the Drive cost initiative and higher U.S. domestic package yields. Increased capacity in the global air cargo market also weighed on international yields.
FedEx Ground and FedEx Freight, the less-than-truckload unit, also enjoyed improved operating results largely attributed to the streamlining efforts. Ground revenue ticked up 2% on a 1% increase in yield and volume. FedEx Freight, which previously announced plans to close seven terminals, revenue moved up 2% on higher average pricing.
“We made significant progress in fiscal 2024 and ended the year strong, delivering four consecutive quarters of expanding operating income and margin in a challenging revenue environment,” said CEO Raj Subramaniam in a news release. “These results are unprecedented in this current environment, reflecting our continued execution of our Drive initiatives and our resolve to transform FedEx while we deliver outstanding service to our customers. We expect this momentum to continue in fiscal 2025 as we advance our efforts to create the world’s most flexible, efficient, and intelligent network.”
U.S. domestic package volume declines continued to moderate while International export package volume increased 8% in the quarter, driven by international economy shipments, consistent with last quarter’s trend, according to the company.
FedEx said capital spending as a percentage of revenue was 5.9%, achieving the 2025 target of less than 6.5% a year early.
“The self-help strategy appears to be working and the company has been more strategic with its capital. Cost cutting will likely remain the main driver in recovering earnings back to pandemic era records, given persistent demand weakness,” said Anthony DeRuijter, analyst at global research firm Third Bridge, in remarks shared with media outlets. “The industry’s excess capacity remains a key issue facing the company and will need to be absorbed to drive results to the next level, but in the meantime FedEx is managing the current macro environment well.”
Wall Street consensus was for about $5.30 per diluted earnings per share during the fourth quarter.
FedEx’s fiscal year 2025 guidance calls for low-to-mid-single-digit percent revenue growth year over year, with adjusted earnings per share of $20 to $22, up 12% to 25% from the prior year.
Better-than-expected profit and forecasts for revenue growth sent FedEx’s stock price up 14% to nearly $293 per share in aftermarket trading.
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