FedEx cites ‘upside’ from UPS labor negotiations and Yellow’s bankruptcy — but Postal Service is giving it a run for its money

Shares of FedEx Corp. rallied after hours on Wednesday after the package deliverer raised its full-year profit outlook, as efforts to cut billions in costs — and disruptions at some of its main rivals — helped quarterly results despite continued weaker shipping demand that weighed on sales.

Executives, during FedEx’s

earnings call, said the company had gained “upside” from sometimes-tense negotiations between archrival United Parcel Service Inc. and the Teamsters union earlier this year and the bankruptcy filing of trucking company Yellow Corp. However, it said recent competition from the U.S. Postal Service weighed on the volume of items shipped.

U.S. freight pounds fell 27% during the quarter, the company said. That continued a trend seen in the prior quarter due to what FedEx called “the change in strategy” by the USPS.

The USPS in July launched a service called USPS Ground Advantage. The service, which it described as “competitively priced for America’s businesses and retail customers,” offers two-to-five day shipping.

Still, FedEx shares surged nearly 6% in after-hours trade. FedEx said it expects adjusted profit per share of $17.00 to $18.50 for its full fiscal year, up from a prior forecast of $16.50 to $18.50. However, executives said they expect “approximately flat” sales for its fiscal year, which ends in May, compared to earlier expectations for “flat to low-single-digit-percent” growth.

The company reported first-quarter net income of $1.08 billion, or $4.23 a share, compared with $875 million, or $3.33 a share, in the same quarter last year. Revenue fell to $21.7 billion from $23.2 billion in the prior-year quarter.

Adjusted for “business optimization” costs, FedEx earned $4.55 a share.

Analysts polled by FactSet expected FedEx to report adjusted earnings of $3.71 a share, on revenue of $21.74 billion.

Chief Executive Raj Subramaniam, in FedEx’s earnings release, called out an “outstanding” performance in FedEx’s Ground business, which ships packages in the U.S. and Canada, and better profitability at its internationally-focused Express division, which offers fast air and ground deliveries.

“First-quarter results improved primarily due to the execution of the company’s DRIVE program initiatives and continued focus on revenue quality,” management said in the statement, referring to the name of their cost-cutting initiative. “The improvement in operating results was partially offset by ongoing demand weakness.”

FedEx reports as it tries to scale back operations and cut billions in costs amid shakier demand, after inflation cut into consumer budgets and the delivery service’s stock took a big hit last year. Even as demand lags, the company is raising prices — tacking on a demand surcharge for holiday-period shipments and raising general shipping rates by 5.9% starting in January.

The results also follow labor tensions over the summer at UPS

— which reached a contract deal with its Teamsters drivers and logistics workers in July — and the Yellow’s bankruptcy filing.

Brie Carere, FedEx’s chief customer officer, said in June that the threat of a strike at UPS had “opened a lot of doors.”

She added at the time: “We’re having a lot of great conversations with legacy UPS customers and we feel really good about the sales pipeline because of the strong value proposition we have versus our primary competitor.”

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