Morning Note: Market news and an update from Federal Express.

Market News

US equity markets finished the session higher last night – S&P 500 (+0.4%), Nasdaq (+1.3%) – buoyed by a recovery of tech stocks. This followed hawkish commentary Federal Reserve officials: Bowman said she sees a number of upside risks to the inflation outlook, while Cook said a rate cut is needed at some point but timing unclear. The 10-year Treasury yield ticked up to 4.27%, while gold slipped to $2,315 an ounce.

This morning in Asia, markets were also firm: Nikkei 225 (+1.3%); Hang Seng (+0.1%); Shanghai Composite (+0.8%). China’s 10-year bond yield slid to a 22-year low.

The FTSE 100 is currently trading 0.5% higher at 8,288, while Sterling buys $1.2673 and €1.1850. Sanofi called for bids for its $20bn consumer health division even as it moved forward with plans for a possible listing of the business.

German consumer confidence remains very subdued, with the GfK reading coming in at -21.8 in July vs -19.5 expected. Olli Rehn said market expectations for two more cuts this year, taking the deposit rate to as low as 2.25% in 2025, were “reasonable.” He said that while ECB officials must ensure inflation returns to 2%, they shouldn’t overly dampen growth activity. Bloomberg Economics sees prices dropping below target in August.

The oil price held steady at $85 a barrel following news that API US crude inventories increased about 900,000 barrels last week. Copper’s recent pullback continued driven by demand concerns in China.

Source: Bloomberg

Company News

Last night, FedEx released results for the financial year ending 31 May 2024 (FY2024) which were ahead of market expectations. The group also issued new guidance for the current financial year to 31 May 2025 which was a touch better than market forecasts. Finally, the company announced it is assessing potential value-creation plans of its FedEx Freight unit. In response, the shares rose sharply (+14%) in after-hours trade.

FedEx Corp. provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce, and business services. Unmatched air route authorities and transportation infrastructure, combined with leading-edge information technologies, make FedEx the world’s largest express transportation company. With annual revenue of $88bn, the company offers integrated business solutions across more than 220 countries and territories utilising its flexible, efficient, and intelligent global network.

The group’s DRIVE programme is focused on reducing structural costs and lowering the capital intensity of the business.

In the financial year to 31 May 2024, FedEx delivered four consecutive quarters of expanding operating income and margin in a challenging revenue environment. However, revenue fell by 3% to $87.7bn as industrial production and parcel shipping demand – its two key business drivers – remained lacklustre as inflation and higher interest rates had an impact. In its final quarter, revenue grew by 1% to $22.1bn, in line with market expectations.

The adjusted operating margin rose by 110 basis points to 7.1% reflecting lower structural costs ($1.8bn) as the company continued to execute on its DRIVE programme. In the final quarter, the margin rose by 40bps to 8.5%. Full-year adjusted diluted EPS rose by 19% to $17.80, with Q4 EPS rising by 10% to $5.41, slightly above the $5.35 market forecast.

By division, FedEx Express operating results declined primarily due to lower international yields, partially offset by reduced structural costs from DRIVE initiatives and higher US domestic package yields

FedEx Ground operating results increased due to reduced structural costs resulting from DRIVE initiatives, increased yield, lower self-insurance costs, and growth in ground commercial volume.

FedEx Freight operating results increased due to higher yield and effective cost management. FedEx Freight has announced plans to further optimise its operations and match capacity with demand through the planned permanent closure of seven facilities.

The company has a strong balance sheet and during the year returned $3.8bn to shareholders through share buybacks ($2.5bn or 3.9% of the shares outstanding) and dividends ($1.3bn). For the current financial year (FY2025), the group expects to repurchase $2.5bn of shares and raise the dividend by 10% to $5.52 (2% yield). Capital spending fell by 16% to $5.2bn.

The group has introduced new guidance for FY2025: revenue is expected to growth by a low-to-mid single-digits; $2.2bn of DRIVE cost savings have been targeted; and adjusted EPS is forecast to be in the range of $20 to $22. Finally, as part of the next phase of the company’s long-term stockholder value-creation plans, it is assessing the role of FedEx Freight in the company’s portfolio structure and potential steps to further unlock sustainable shareholder value. This review is expected to be completed by the end of the calendar year.

Source: Bloomberg