FedEx Corporation's ($FDX) earnings for the fiscal first quarter may face significant headwinds due to a "sub-seasonal" demand landscape and broader macroeconomic challenges, according to insights from BofA Securities. This established parcel delivery leader is anticipated to reveal its first-quarter earnings report on Thursday, and the market is keenly watching these developments. BofA has adjusted its non-GAAP earnings forecast considerably, reducing it to $4.76 per share from a previously estimated $5.21.
Comparatively, analysts consulted by Capital IQ are projecting a normalized earnings per share (EPS) of $4.77 for this period. BofA's revision comments on FedEx's restructured reporting framework, titled "one FedEx," which integrates its prior express, ground, and service divisions into a singular Federal Express segment, reflecting a strategic shift within the company. The investment firm predicts a modest year-over-year volume uptick for Federal Express, particularly in light of the impending reduction of its US Postal Service contract, which is set to expire next month.
Analyst Ken Hoexter emphasized in a client note that he expects the segment's first-quarter operating margin to remain consistent with last year's performance at 7.3%. As for freight operations, the forecast is less optimistic. Despite expectations for a sequential improvement in freight's operating margin for the quarter, it is projected to fall short of the five-year historical improvements due to unfavorable demand trends and a sluggish industrial landscape.
This comes as the market continues to adjust following the collapse of trucking company Yellow over the past year, which further complicates the operational landscape for FedEx. Furthermore, BofA has revised downward its fiscal 2025 EPS outlook to $20.25 from an earlier anticipation of $21. The firm has also adjusted its price target for FedEx shares, reducing it from $347 to $345 while maintaining its buy recommendation.
Hoexter reiterated the company's strategic focus on achieving $2.2 billion in structural cost reductions by 2025. Additionally, the goal is to realize $2 billion in cost savings in the period from 2025 to 2027 through efforts aimed at streamlining the package delivery networks. On the trading floor, FedEx's shares exhibited minimal changes during Wednesday's afternoon session, although they have gained nearly 18% year-to-date.
BofA’s analysis points towards a promising outlook regarding FedEx's initiative for structural cost optimization and the potential for enhanced value through a comprehensive review of its freight operations. The company initiated this review back in June, with plans to wrap it up by year’s end. The possibility of further details surfacing regarding a potential spin-off of the freight business segment could serve to elevate the company's market valuation even more significantly, as highlighted by Hoexter's commentary on Wednesday. Price per Share: $297.20, Change: -$0.14, Percent Change: -0.05..