FedEx stock surges after hours due to the implementation of significant cost-saving measures.

• The company announced its fiscal fourth quarter revenue and earnings beats, as well as a decrease in capital spending, on Tuesday.
• Currently, FedEx is implementing a $4 billion cost-cutting initiative that involves merging its air and ground shipping operations.

The company's shares surged more than 15% after hours on Tuesday following the release of earnings and revenue results that exceeded analysts' expectations.

Based on a survey of analysts by LSEG, how did the company perform in its fiscal fourth quarter compared to Wall Street's expectations?

• Earnings per share: $5.41 adjusted vs. $5.35 expected
• Revenue: $22.11 billion vs. $22.07 billion expected

The company's net income for the three-month period ending May 31 was $1.47 billion, or $5.94 per share, which was lower than the $1.54 billion, or $6.05 per share, recorded in the same period a year ago.

For the full fiscal year, revenue was $87.7 billion, down from $90.2 billion. Revenue rose to $22.1 billion, up slightly from $21.9 billion a year earlier.

Capital spending for fiscal 2024 at FedEx was $5.2 billion, a 16% decrease from the previous year's $6.2 billion and lower than the $5.7 billion it had forecasted in its fiscal 2024 guidance.

Brie Carere, FedEx's Chief Customer Officer, stated on the company's earnings call that the company achieved low-to-mid single-digit percent revenue growth year over year for fiscal 2025, primarily due to e-commerce and low-inventory levels.

""We believe e-commerce will surpass B2B growth, as we see promising fundamentals from an e-commerce perspective globally," Carere stated."

The company is intensifying its cost-cutting efforts in order to achieve a $4 billion reduction in spending by the end of fiscal 2025.

In response to weak freight demand, FedEx implemented its DRIVE transformation program to reduce expenses and streamline operations.

FedEx CEO Raj Subramaniam announced on the company's earnings call that they have achieved their target of $1.8 billion in structural costs in fiscal year '24.

Subramaniam stated that the company is confident in achieving its $4 billion cost-cutting target and anticipates an additional $2 billion through the consolidation of its air and ground services.

In April 2023, FedEx announced that it would consolidate its delivery companies, including Express, Ground, Services, and others, into a unified Federal Express Corporation operating under the FedEx brand and alongside the Freight segment. The company expects the combined delivery business to handle all deliveries starting June 2024.

CFO John Dietrich stated that the company anticipates the newly merged segments to be the primary contributor to the increase in fiscal year 2025 adjusted income and margin improvement.

According to Carere, FedEx anticipates a moderate improvement in the demand environment up until FY25.

The Express segment, which is the largest for the company, has been facing challenges in growing its margins over the past year. Despite ending the fourth quarter with 4.1% margins, which is the same as the previous year, the segment's operating margin for fiscal 2024 was only 2.6%, a slight improvement from 2.5% last year.

Subramaniam stated that enhancing the performance of the Express division is a "top priority" for the company as they transition into fiscal 2025.

Despite the company's quarterly dividend increase of 10 percent due to cost-cutting measures, investors anticipate challenges, especially after losing the U.S. Postal Service contract to a competitor in April.

Starting September 30, USPS will make UPS its primary air cargo provider, replacing FedEx, who's contract will expire. USPS was previously the largest customer for UPS's Express segment. The company anticipates a $500 million loss in fiscal 2025 due to this change.