Why FedEx Stock Hit the Gas in June

In late June, FedEx (FDX -0.35%) delivered a quarterly report that topped expectations, and management provided an upbeat outlook for the quarters to come.

All of that was a relief to shareholders, as the company had previously endured a shipping slump. In response, investors sent FedEx shares up 18.1% for the month, according to data provided by S&P Global Market Intelligence.

Rosier numbers than investors feared

FedEx and other shipping and logistics companies had been stuck in traffic for most of the last year. The industry enjoyed robust demand during the more intense phases of the pandemic and immediately after as retail — and online retail in particular — thrived. But inflation, the higher interest rates that the Fed deployed to fight it, and the threat of a slowing economy caused their large customers to cut back on inventories, depressing demand for shipping services.

With that background in mind, FedEx’s fiscal 2024 fourth-quarter results, while not spectacular, were encouraging. For the period, which ended May 31, the company beat top- and bottom-line expectations, and delivered revenue that was up slightly from a year ago.

For the full fiscal year, revenue was down less than 3%.

Management forecast revenue growth in the low- to mid-single-digit percentages for the new fiscal year, and provided an earnings guidance range of $20 per share to $22 per share. At its midpoint, that would be modestly higher than analysts’ $20.91 per share consensus estimate.

The company is making progress on bringing down costs, which is helping to offset sluggish demand growth. It also said it was considering options for FedEx Freight, the nation’s largest less-than-truckload operation, which is currently a lower-margin operation inside its portfolio.

Although a spinoff is the most likely outcome for FedEx Freight, given its size, a sale of the business would allow FedEx to add to the $3.8 billion it returned to shareholders in fiscal 2024 through buybacks and dividends.

Is FedEx stock a buy?

FedEx shares are now up 18% for the year, but have been flat over the past three years. The company is headed in the right direction, but investors need to be aware the stock is unlikely to repeat June’s performance in the months to come.

Although the bottom might be in on shipping demand, we are unlikely to see a real strengthening until corporate customers feel more certain about where the economy is heading. Given the confusion around the outlook for interest rates, and the added chaos that comes in an election year, it could be early 2025 before FedEx and its peers see demand firm up.

In the meantime, the company is likely to continue to make progress in cutting costs and will assess the role of FedEx freight in the portfolio. For long-term focused investors, there is a lot to like about FedEx, but they should temper their near-term expectations following the stock’s big June run-up.