FedEx plans $5 bn buyback as CEO's cost-cutting measures yield results

The shares rose as much as 13% after regular trading in New York, while competitor United Parcel Service Inc. advanced 3.4%

By Kiel Porter

FedEx Corp. plans to buy back $5 billion of its shares as cost-cutting efforts have helped boost the courier’s profits.

Adjusted earnings were $3.86 a share for the period ending Feb. 29, topping Wall Street’s third-quarter expectations of $3.46 a share, FedEx said Thursday in a statement. Sales of $21.7 billion fell slightly short of estimates compiled by Bloomberg.

Chief Executive Officer Raj Subramaniam is in the process of restructuring the company’s delivery networks, part of a sweeping plan that has included shrinking the company’s workforce by tens of thousands of jobs. The overhaul, announced last year, marks a shift from the strategy of founder Fred Smith, who started FedEx in 1971 and long defended a two-network approach as a competitive advantage.

“We are making meaningful progress on our transformation,” Subramaniam said in the statement. The overhaul plan has made permanent cost reductions of $1.8 billion, while also boosting operating income and lifting margins.

The shares rose as much as 13 per cent after regular trading in New York, while competitor United Parcel Service Inc. advanced 3.4 per cent. FedEx had gained 4.7 per cent this year through Thursday’s close, trailing the broader market.

The results reflect the progress Fedex has made in turning around its Express division, which has struggled amid a shift by consumers and businesses towards sending mail and packages via ground. Both Express and the Ground divisions benefited from lower structural costs in the quarter, FedEx said.

Workforce reductions over the last year have totaled nearly 22,000 jobs, Chief Financial Officer John Dietrich said on a conference call with analysts. Most of the cuts have come via attrition, according to the company.

“FedEx gave investors plenty to celebrate especially as it relates to showing progress towards reducing structural costs and its announced $5 billion share repurchase program,” said Bloomberg Intelligence analyst Lee Klaskow.

FedEx is “feeling very positive” about contract negotiations underway with the US Postal Service, ahead of the current pact’s expiration in September, Chief Customer Officer Brie Carere said.

“I think we are days or weeks away from knowing if we’ll have a contract, not months,” Carere said on the call.

The better-than-expected performance last quarter came despite national service disruption in January due to poor winter weather.

FedEx on Thursday also narrowed its profit forecast for this fiscal year. It now sees adjusted earnings of $17.25 to $18.25 a share, compared with an earlier range of $17 to $18.50.

The new buyback plan comes in addition to an existing $600 million that remains under its 2021 initiative.