FedEx shares surge over 13% as investors welcome $1.8 b reduction in structural costs

FedEx Corp. shares surged over 13% in Wednesday’s premarket session following the company’s announcement of significant structural cost reductions for fiscal year 2024.

Investors reacted positively to the news, which is part of FedEx’s broader strategic initiative aimed at enhancing efficiency and profitability.

Cost-cutting measures by Fedex boost confidence

FedEx revealed that it had reduced $1.8 billion in structural costs for fiscal year 2024. This reduction is a key component of the company’s DRIVE initiative, which aims to achieve a total cost reduction of $4 billion by the end of fiscal year 2025.

The successful implementation of these cost-saving measures has been well-received by the market, as evidenced by the substantial rise in the company’s share price.

FedEx has stated that cutting costs associated with supporting postal service volume will enhance profitability starting in fiscal 2025 and continuing thereafter.

Louis Navellier, founder and chief investment officer of Navellier & Associates, an asset management firm that holds FedEx shares in a fund, remarked, “FedEx’s guidance was impressive, especially considering it did not renew its contract with the U.S. Postal Service.”

Since taking over from founder Fred Smith two years ago, CEO Subramaniam has been reducing costs and consolidating FedEx’s separate airplane- and truck-based delivery units in response to pressure from activist investors.

Revenue and capital expenditure highlights

For the latest quarter, FedEx reported revenue of $22.1 billion, slightly exceeding the expected $22.07 billion. Additionally, the company disclosed that its capital spending for fiscal year 2024 amounted to $5.2 billion, a 16% decrease from the $6.2 billion spent in fiscal year 2023.

This expenditure also fell below the $5.7 billion forecasted in the company’s previous fiscal 2024 guidance.

Strategic implications and future outlook

The reduction in capital spending and the focus on cost efficiency are part of FedEx’s strategic plan to streamline operations and improve financial performance. By cutting costs and optimizing expenditure, FedEx aims to enhance its competitive position and drive long-term growth.

As the company continues to implement its DRIVE initiative, investors will be looking for further evidence of operational improvements and financial gains.

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