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“The company has stemmed the bleeding,” Stifel analyst Bruce Chan wrote after FedEx reported a smaller-than-expected drop in earnings by parking planes, closing offices, stopping rural Sunday delivery and furloughing workers in its freight division.
“There is still a lot of work ahead,” said Chan, who added that cutting too deeply could put future growth at risk.
Shares in FedEx rose 4.7% to $172 at midday Wednesday, a level far below their 52-week high of $266.79.
The stock has been under pressure since September, when the Memphis, Tennessee-based company pulled its forecasts – sparking the largest one-day price drop in its history.
The company slashed costs and “outran deteriorating market conditions” in the fiscal second-quarter that ended Nov. 30, Morgan Stanley (NYSE:MS) analyst Ravi Shanker wrote in client note.
But significant obstacles remain – particularly as e-commerce demand reverts to pre-pandemic norms, global recession threatens and customers chafe over the company’s biggest-ever rate hike next year, analysts said.
The e-commerce reset alone is a large challenge for the company that delivers for major retailers like discounter Walmart (NYSE:WMT) and pet supply seller Chewy (NYSE:CHWY), analysts said.
And, those are just the external risks, they said.
FedEx has been underperforming its unionized rival United Parcel Service (NYSE:UPS), which is squeezing greater profit from its leaner, more streamlined operating structure. FedEx has outlined plans to integrate its disparate businesses, revive its long-troubled Europe operations and appease activist investor D.E. Shaw.
On Tuesday, FedEx issued a new 2023 profit forecast, signaling that it may be “finding the floor,” Susquehanna analyst Bascome Majors said.
“Now, it’s all about execution,” Evercore ISI analyst Jonathan Chappell said.
