FedEx Q2 operating income drops 18% on lower Freight revenue

FedEx reported an 18 percent decline in operating income at $1.05 billion for the second quarter ended November 30, 2024 on lower-than-expected FedEx Freight revenue and profit as sustained weakness in U.S. industrial production continued to pressure less-than-truckload (LTL) industry demand.

Revenue was down marginally at $22 billion while operating margin declined to 4.8 percent from 5.8 percent during the same period last year, says an official release.

“Our second quarter results demonstrate that our efforts to transform our operations are working," says Raj Subramaniam, President and Chief Executive Officer, FedEx. "The Federal Express segment delivered operating profit growth despite several headwinds, including the continued weak U.S. domestic demand environment as well as the expiration of our U.S. Postal Service contract. I am proud of the team for continuing to deliver solid service to our customers throughout the Peak season, as we create a more flexible, efficient, and intelligent network.”

The lower FedEx Freight results were mostly offset by cost reduction benefits at Federal Express from DRIVE programme initiatives and higher base yields at each transportation segment, the release added.

"FedEx Freight segment operating results decreased during the quarter due to fewer shipments, lower fuel surcharges and reduced weight per shipment, partially offset by higher base yield. Last year's second quarter operating income included a $30 million gain on the sale of facilities."

The Board of Directors of FedEx concluded a comprehensive assessment of the role of FedEx Freight as part of its portfolio, and decided to pursue a full separation through the capital markets, creating a new publicly traded company. The separation is expected to be achieved in a tax-efficient manner for FedEx stockholders and executed within the next 18 months.

For the first six months of fiscal 2025, revenue came in at $43.5 billion while operating income was $2.1 billion.

Outlook
FedEx revised its fiscal 2025 revenue and earnings forecasts, and now expects:

*Approximately flat revenue year over year, compared to the prior forecast of a low single-digit percentage increase; and

*Diluted earnings per share (EPS) of $16.45-17.45 before the mark to market (MTM) retirement plans accounting adjustments compared to the prior forecast of $17.90 to $18.90 per share; and $19-20.00 per share after also excluding costs related to business optimisation initiatives compared to the prior forecast of $20-21.00 per share.

FedEx has reaffirmed permanent cost reductions from the DRIVE programme of $2.2 billion and capital spending of $5.2 billion for fiscal 2025, the release added.

“I remain confident FedEx will continue to grow earnings this year despite the challenging demand environment as we focus on transforming operations and improving revenue quality,” says John Dietrich, Executive Vice President and Chief Financial Officer, FedEx. “We are resolute in our strategy to prudently manage our capital expenditures, and expect to deliver on our commitment to return $3.8 billion to stockholders this fiscal year.”