FedEx gets more selective about shipments, profit rises

© Reuters. A FedEx worker delivers packages in Manhattan, New York City, U.S., May 9, 2022. REUTERS/Andrew Kelly

LOS ANGELES (Reuters) -FedEx Corp reported higher quarterly earnings and issued a stronger-than-expected full-year forecast on Thursday, after it cherry-picked profit-boosting deliveries amid softening global demand for shipping.

FedEx (NYSE:FDX)'s closely-watched Ground unit margin improved from the prior quarter, helping to send shares of the Memphis-based company up 2% to $232.75 in extended trading. That operation handles the bulk of its e-commerce home deliveries and drives the company's growth. But it performance has lagged that of rival United Parcel Service (NYSE:UPS), whose new chief executive adopted a "better not bigger" mantra two years ago.

Investors are pressuring new FedEx Chief Executive Raj Subramaniam to improve service and squeeze more profits from the company's sprawling and independently operated Ground, Express and Freight segments. Subramaniam succeeded founder Fred Smith at the helm of the 50-year-old firm on June 1.

Ground margins improved to 10% from 7.3% in the third quarter, after executives increased fuel surcharges, culled unattractive shipments and saw profit-sapping labor costs begin to stabilize. Revenue per package jumped 11%.

Executives said they expect elevated shipping prices to stick, even as inflation, pandemic and geopolitical risks weigh on business activity around the world.

On Ground rates, Subramaniam said: "We are essentially critical infrastructure for e-commerce."

Adjusted net income for the fiscal fourth quarter ended May 31 jumped 32% to $1.8 billion, or $6.87 per share, from a year earlier. Revenue grew 8% $24.4 billion.

Per-share earnings beat analysts' estimate by a penny, according to Refinitiv I/B/E/S Estimates, while revenue slightly missed analysts' target of $24.56 billion.

The company issued a full-year forecast for earnings per share of $22.50 to $24.50 excluding items - above analysts' average estimate of $22.14 per share, according to Refinitiv I/B/E/S Estimates.

Last week, FedEx expanded its board under a cooperation agreement with activist investor D.E. Shaw Group, which has a 1% stake in the company.