(Reuters) – Shares of FedEx Corp surged over 11% before the bell on Friday, after aggressive cost cuts helped the freight bellwether lift its profit forecast despite falling e-commerce package volumes.
The company’s results in recent quarters had taken a hit from bloated operations, which frustrated investors. They had raised concerns about its performance in comparison to rival United Parcel Service Inc, which has a unionized workforce.
FedEx on Thursday cited progress on its plan to save $3.7 billion in costs by cutting jobs and parking jets, buoying Wall Street.
“Management has been able to cut costs faster than expected which offsets concerns of decelerating pricing support and merits and average multiple in our view,” said J.P. Morgan analysts as they bumped their price target on FedEx stock by $34 to $233, compared with the median Wall Street target of $237.50.
(Graphic: FedEx shares over the past 12 months – https://fingfx.thomsonreuters.com/gfx/buzz/egpbyjmalvq/FedEx.png)
However, package volumes are set to remain under pressure in the coming months, FedEx warned, further clouding outlook for the e-commerce and freight sectors that are already grappling with high inflation and could face further challenges from the recent banking crisis.
For example, e-commerce sales at Walmart Inc rose 17% in its latest reported quarter, far below the peak pandemic level of near 70% growth, while Amazon.com Inc said last month economic uncertainty was weighing on consumers.
Though some trucking firms had expressed optimism that freight volumes will rebound in the second half of the year, some analysts worry that a spate of challenging macroeconomic indicators will see that timeline slip.
“Although (freight) customers still say they expect a 2H pick-up, they are not reaching out to schedule additional capacity… An acceleration may still occur, (but) we expect confidence to weaken as the timelines get extended,” Wells Fargo analyst Allison Poliniak-Cusic said.
(Reporting by Nathan Gomes in Bengaluru; Editing by Shinjini Ganguli)
