By Lisa Baertlein and Priyamvada C
(Reuters) -FedEx surprised investors with a big quarterly profit beat on Wednesday after it cut costs and poached customers from rivals UPS and Yellow (OTC:YELLQ) ahead of the vital holiday shipping season.
FedEx (NYSE:FDX) shares rose 5.7% to $264.60 in extended trading after the global delivery firm reported a 32% jump in fiscal first-quarter adjusted earnings, to $4.55 per share - 82 cents more than Wall Street expected, according to LSEG data.
FedEx CEO Raj Subramaniam and other executives said the Memphis, Tennessee-based company can retain business won due to tumultuous labor talks at United Parcel Service (NYSE:UPS) and the bankruptcy of trucking firm Yellow - even as soft demand intensifies market share battles.
FedEx said its Ground unit picked up about 400,000 more packages per day after UPS customers shifted volume to alternate carriers ahead of the Aug. 1 expiration of the contract covering its unionized workforce. UPS union members ratified a new labor contract on Aug. 22, averting a potential strike.
Operating income in the FedEx unit, which delivers packages for retailers like Walmart (NYSE:WMT), jumped 59% for the quarter ended Aug. 31.
FedEx Freight also took advantage of the demise of Yellow, a dominant player in the less-than-truckload transportation sector that ceased operations in July. The division added 5,000 average daily shipments after the bankruptcy. Nevertheless, its operating income fell 26% during the quarter.
Analysts expect customer gains from UPS to be less durable than those from Yellow.
"UPS will likely be able to regain much of its lost market share," Edward Jones analyst Matt Arnold said.
Without offering a specific forecast, FedEx said it was "well-positioned" for the upcoming holiday season, when volume typically doubles due to e-commerce sales.
Elsewhere, FedEx's air-based Express business squeezed out an 18% operating profit gain for the quarter after expense reductions from parking aircraft and layoffs more than offset a 9% revenue decline.
FedEx tightened its adjusted fiscal 2024 earnings forecast to $17 to $18.50 per share, increasing the low end of the range by 50 cents from its prior forecast on customer gains and leaner operations.
Still, FedEx and its competitors are grappling with deflating demand as well as recession risks around the world.
FedEx tempered its full-year revenue forecast on Wednesday. It now expects flat revenue versus a year ago, compared with its prior call for flat to low-single-digit percent revenue growth.
Under pressure from investors including activist D.E. Shaw, FedEx said it continues to root out expenses and merge its separate operating units.
In a nod to shareholders, the company said it planned to repurchase $1.5 billion of common stock this fiscal year ended May.
(Reporting Lisa Baertlein by in Los Angeles; Additional reporting by Priyamvada C in Bengaluru; Editing by Bill Berkrot and Leslie Adler)