FedEx gets the message: Cheaper is better

A series of cost-cutting moves helps the delivery company turn a better profit than Wall Street expected. Shares rise 5% as a result.

By Jonathan Berr Sep 18, 2013 5:00PM
FedEx boxes on a delivery truck in New York City (© Mike Segar/Newscom/Reuters)FedEx (FDX), which used to promote itself to customers who "absolutely, positively" had to have packages delivered overnight, has learned the hard way that clients also want stuff shipped as cheaply as possible.

The world's largest cargo airline has been in cost-cutting mode for a while, slashing capacity to Asia and shedding thousands from its workforce.

All that pain, however, has paid off. Wednesday's earnings report from the Memphis company was better than Wall Street analysts expected. Shares rose more than 5%, closing at $116.25. The company also affirmed its full-year forecast. For a closer look at the numbers, click here.

"With each quarter we're seeing them take steps, sometimes small steps, but at least steps in the right direction," Edward Jones analyst Logun Purk, who recommends buying the stock, told Bloomberg News. "Cheaper and slower is the way to go."

Rival UPS (UPS), the largest package delivery service, is in a similar predicament. In July, the company cut its 2013 earnings forecast, citing the sluggish U.S. economy. Perhaps the cutting there is starting to yield benefits as well.

Both FedEx and UPS are seen as economic bellwethers since their services are used by such a wide variety of businesses. The outlook, though, for both companies is starting to improve. U.S. gross domestic product increased at a 2.5% annual rate from April through June, better than the 1.7% that had originally been reported. It also exceeded economists' expectations.

--Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr and at jonathanberr.com.

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1Comment
Sep 19, 2013 1:04PM
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FedEx is expensive and ridiculously costly. Check shipping cost before using FedEx.
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