What To Expect From FedEx’s Q1

FedEx (NYSE: FDX) is scheduled to report its fiscal Q1 2025 results on Thursday, September 19 (FedEx’s fiscal year ends in May). We expect the company to post an upbeat quarter, driven by an overall improvement in volumes. Furthermore, its cost reduction actions are expected to bolster its bottom-line growth. Although we think FedEx navigated well in Q1, its stock appears to have little room for growth from its current levels of around $300. Our interactive dashboard analysis of FedEx’s Earnings Preview has more details on the company’s revenues and earnings for the quarter.  So, what are some trends likely to drive FedEx’s results?

Firstly, let us look at FedEx’s performance in the previous quarter. FedEx’s Revenue rose 1% y-o-y to $22.1 billion, primarily due to slightly higher yields for both Express and Ground segments. The average daily volume was down 1% for Express but up 1% for the Ground segment. FedEx also saw its adjusted operating margin expand by 40 bps to 8.5% in Q4’24. This clubbed with a 2% decline in average shares outstanding, amid share repurchases, resulted in a 10% rise in the bottom line to $5.41 on an adjusted basis.

Coming to the latest quarter, we expect revenues to be around $22.1 billion, reflecting a roughly 2% y-o-y rise – slightly ahead of the consensus estimate of a little under $22 billion. FedEx has had a tough few quarters amid falling delivery volumes. The weakening consumer demand in the wake of high inflation has weighed on overall volumes. However, the company has seen market share gains lately and this should aid overall sales growth. Average daily volumes are also expected to now improve after seeing weaker demand over last year. Additionally, FedEx’s Q1 results should benefit from its ongoing cost-cutting initiatives that aim to reduce $4 billion in costs by the end of fiscal 2025. We estimate the bottom line to be $4.90 on an adjusted basis, reflecting 8% y-o-y growth.

With the U.S. Fed expected to announce a rate cut now, consumer sentiment is expected to improve over the coming quarters. However, the broader markets will react to the quantum of the rate cut. A lower-than-expected rate cut will likely result in a correction. Curious about the impact of a market crash on FDX stock? Our dashboard How Low Can FedEx Stock Go In A Market Crash? has a detailed analysis of how the stock performed during and after previous market crashes.

Looking at FDX stock now, we think it has little room for growth. We estimate FedEx’s Valuation to be $318 per share, reflecting an upside of less than 10% from its current levels of around $300. FDX stock is already trading at 14x forward expected adjusted earnings of $21.00 per share, which is aligned with the stock’s average P/E ratio seen over the last five years.

Even if we look at a slightly longer term, FDX stock, with 15% gains since early 2021, has underperformed the broader markets. Its annual returns are considerably more volatile than the S&P 500. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period.

Overall, we think FedEx will post an upbeat Q1, and it will likely have more positives to look forward to on the back of improving volumes and margin expansion. While much of this appears to be priced in, the stock could still see higher levels if the company were to raise its full-year outlook and the overall volume shows further signs of improvement.