UPDATE 1-FedEx Sees Double-Digit Earnings Growth for Next Three Years

(Remixes headline and first paragraph with forecast, adds stock movement)

By Lisa Baertlein

LOS ANGELES, June 29 (Reuters) – FedEx Corp said on Wednesday it expects double-digit adjusted profit growth through 2025 as the global shipping company seeks to capitalize on its strategy of delivering packages that bring in more money.

The company, which has come under pressure from an activist investor and delivery contractors, said it expects adjusted earnings per share to grow at an average annualized growth rate of 14% to 19% by 2025, and revenues increase by 4% to 6%.

FedEx last week announced adjusted earnings of $20.61 per share for fiscal year 2022 and revenue of $93.5 billion.

FedEx shares rose 1.4% before the bell ahead of the company’s Investor Day on Wednesday.

Raj Subramaniam, who took over from FedEx founder Fred Smith on June 1, faces two competing groups: investors who want FedEx to make more profit from its operations, and ground unit contractors of the company who are driving its growth and want more money to offset their rising costs.

FedEx’s quarterly report last week offered a glimpse of things to come. FedEx executives have battled slowing parcel volume by focusing on higher-profit or “revenue-quality” deliveries, echoing the “better not bigger” mantra adopted by rival United Parcel Service there. two years ago.

However, a slowing economy could undermine the pandemic-era price increases needed to execute that strategy and appease activist DE Shaw Group, analysts warn. Investors expect to hear more about the Memphis-based company’s growth during a possible recession.

So far, the change is paying off for FedEx. Last quarter revenue jumped 8% even as the company processed fewer packages.

FedEx Ground reported an 11% increase in revenue per package despite a 6% decline in average daily volume. Ground’s cheapest and slowest “economy” service was the hardest hit, dropping 36%.

This apparently made investors like activist DE Shaw Group happy. Earlier this month, the hedge fund won two seats on FedEx’s board of directors and was promised one more. The company has not publicly shared its goals for FedEx.

Yet the ground contractors who handle the bulk of FedEx’s door-to-door deliveries don’t share in the success. They depend on volume to help offset higher gas prices, driver salaries and delivery to remote residential addresses.

Jeff Walczak, CEO of ground contractor consultancy eTruckBiz.com, says 20-25% of his clients struggle to make a profit, about double the normal rate.

“Most people in this business have never seen a drop in volume, and it stings them a lot,” Walczak said.

Many are working on one-year fixed contracts and have struggled to negotiate more money with FedEx. At the same time, FedEx now wants to pass on the cost of lost and damaged packages to those carriers, Walczak said. (Reporting by Lisa Baertlein in Los Angeles and additional reporting by Nathan Gomes in Bengaluru; Editing by Richard Pullin and Shinjini Ganguli)