Published - July 01, 2022 @ 12:38 PM (EET)
This week, shipping giant FedEx Corp. (NYSE:FDX) told investors it would boost sales and profit by targeting "high-value" customers and improving efficiency.
At its Investor day Wednesday, FedEx outlined financial goals for 2025, indicating plans to increase operating profit by $3 billion to $4.5 billion from fiscal 2022.
The figures imply a fiscal 2025 operating profit of about $10.7 billion, an increase of 19% compared with Wall Street estimates of more or less $9.3 billion.
It is a pivotal moment for Chief Executive Raj Subramaniam, who took over from founder Fred Smith on 1 June as an activist investor, is pressing for FedEx to boost sales.
Subramaniam will have to steer FedEx through the post-pandemic economy whereby consumers spend more on services and in-stores, causing e-commerce package growth to slow.
FedEx executives said the company has the flexibility to respond to economic conditions and fluctuations in demand and also expects to improve profit margins in the current fiscal year.
"We have dealt with an economic crisis before," said Subramaniam at the meeting. "Cycles come and go. To be very clear, we are not assuming a deep economic recession. If the economy slows down to a mild recession, we can manage through it."
According to a statement, the company will reduce capital spending to 6.5% of revenue and expects profit margins to be 10% during the three-year period.
WHY IT MATTERS
For years investors blamed the company's inconsistent performance and redundant costs tied to its independently operated Express, Ground, and Freight segments.
However, the company is not planning to combine the units yet - resisting calls from investors - citing operating complexities. Hopefully, investors can expect even bigger changes under the new leadership.
Analyst Samuel Horn at Polaris Capital Management, which has around $80 million invested in FedEx shares, said, "I think they have good long-term objectives. The e-commerce market is quite dynamic, but it looks like Raj as the new CEO is determined to deliver higher margins."
Since 13 June, the company's shares are up nearly 19%, while the S&P 500 gained 1.9% over the same period.
