FedEx sees profit gains on cost-cutting efforts

Shares of FedEx (FDX) are trading higher in the premarket after the company issued its third quarter report. The company beat on profits for the quarter in what CEO Raj Subramaniam called a “difficult demand environment.” While missing on revenue expectations, the company surpassed adjusted EPS expectations of $3.46, coming in at $3.86.

Seana Smith and Jared Blikre discuss how FedEx’s cost-cutting plan has contributed to the company’s progress.

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Editor's Note: This article was written by Gabriel Roy.

Video Transcript

SEANA SMITH: Time for today's stock to watch, and that is FedEx. Take a look at this chart, because shares are jumping higher in the premarket trading, up just about 11%. The company beat profit estimates for the third quarter, their CEO touting improved profitability in a, quote, "difficult demand environment." The shipping giant also announcing its board approved a $5 billion share repurchase program. And you can see a slight revenue miss there, but EPS coming in better than expected at $3.86.

And, Jared, a lot of this, or the beat at least, in terms of some of that better than expected results that we got here last quarter, a lot of that has to do with the cost cutting plan that FedEx laid out several quarters ago and the progress that they have made on that. They're looking to cut nearly $2 billion in cost by the end of this fiscal year and keep those costs off going forward. So that's adding to some of that positive sentiment here in reaction to this report. And also, margins improved, too, which is also helping the investment scenario.

JARED BLIKRE: I think that's a larger story there, too. And you're absolutely right, it was up to FedEx to deliver here, no pun intended. Sorry about that, it's too early here. But it's really also the old case of its express business, versus ground express has been a better operating business, historically, and that seems to be the consensus on the street, as well.

I do have a couple of analyst notes. Morgan Stanley, they are rating the stock equal-weight with a price target that is now $210 up from $195. They're saying, while the bulls will like it that the express business was better than feared and the $5 billion buybacks are there, the bears are going to point to the continued revenue miss, potential earnings quality issues, and more. And then Jefferies, real quick, says while its express business delivered a standout beat this quarter, volumes were softer than expected at its grounds business.

And so I'd just like to go to the Wi-Fi Interactive real quickly and just kind of chart what's been going on this year. We've seen transports at record highs, but I'll tell you what, FedEx is kind of a sideways trading stock. And here's the last 10 years, you can see it's in the upper end of its range, kind of the upper third. But for the most part, that is a very sideways looking chart. So you've got to think, gets back up to 280, is it going to die like it has before.

SEANA SMITH: Well, many traders are hoping not. But when it comes to some of the progress, you could be making a bull case in this report and you could also be making the bear case, just in terms of some of the trends [INAUDIBLE] ground business, volumes were down, margins did improve, but volumes were down on the express side. We did see some strength there, and it is easing some of those execution concerns that we did have going into the quarter. So it's still very much a prove-me story when it comes from the investor perspective I think. But clearly, progress is being made on some of those cost cutting efforts and we're seeing that reflected in the move to the upside this morning.