FedEx (FDX) shares slumped lower Wednesday after the world's biggest package delivery group cautioned that profit margins in its workhorse ground transportation division would expand at a slower rate over the coming year amid a surge in fuel and input costs.
FedEx, which is hosting its first investor day in more than a decade in Los Angeles, said its ground unit margins would likely rise between 11% and 12% over the next three years, a pace that would trail the division's recent growth.
The forecasts came alongside an expectation of a compound annual earnings growth of between 14% and 19% in fiscal year 2025, with capex to revenues capped at 6.5% or below.
Earlier this month, FedEx pledged to add three new members to its board of directors while reducing its planned capex-to-revenue targets in order to return more cash to investors and aligning executive pay more closely to shareholder returns as it faced activist pressure from D.E. Shaw.
“The FedEx team and its unparalleled network have been connecting the world and creating opportunities since our founding,” said new CEO Raj Subramaniam, who took over from founder Fred Smith on June 1. “As we enter the next phase of FedEx, we will unlock value from this foundation to deliver outstanding returns to all of our stakeholders."
"Our strategy is focused on driving yields, expanding margins, and elevating returns through profitable growth and capital efficiency," he added. "We have tremendous momentum and a committed leadership team focused on delivering today, while innovating for tomorrow.”
FedEx shares were marked 2.8% lower in early afternoon trading Wednesday to change hands at $233.25, extending the stock's year-to-date decline to around 9.8%.
FedEx posted better-than-expected fourth quarter earnings last week, noting it passed on rising fuel costs to customers that allowed for improved margins in its key ground shipping unit
That helped drive an overall bottom line gain of 37.1%, to $6.87 per share. Group revenues, FedEx said, rose 8.1% from last year to $24.4 billion, narrowly topping analysts' estimates of a $24.05 billion tally.
Looking into the group's coming fiscal year, which ends in February of 2023, FedEx said it sees earnings in the region of $22.45 to $24.45 per share, well ahead of Refinitiv forecasts, adding it expects to repurchase around $1.5 billion of stock over the final six months of the coming financial year.