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FedEx (FDX +15%) is up sharply after it closed out FY24 on an upbeat note last night. It posted a decent Q4 (May) beat on EPS and revenue rose 0.8% yr/yr to $22.11 bln, which was also better than expected. A couple of things on revenue. Importantly, FDX finally returned to yr/yr revenue growth after six consecutive quarters of declines. Growth was modest, but investors are happy to see any growth at this point. Also, FDX had reported eight consecutive top line misses, so it was good to see upside again.

• FDX said that the entire industry faced a challenging demand environment in FY24. It focused on what it could control and, as a result, delivered full-year adjusted earnings towards the higher end of its original guidance range, up 19% yr/yr. And that was despite a decline in revenue compared to its initial growth expectations. In Q4, while FDX saw modest yield improvement and signs of volume stabilization across segments, it still has not yet seen a notable increase in demand.
• FedEx Express segment revenue in Q4 was roughly flat yr/yr at $10.42 bln. FedEx Ground segment revenue rose 2.4% yr/yr to $8.49 bln. FedEx Freight segment revenue rose 1.6% yr/yr to $2.31 bln. FedEx noted that Ground delivered its highest adjusted operating income in company history for both Q4 and the full year. At Freight, Q4 operating income increased despite significant demand weakness. Adjusted Express operating margin increased sequentially, but declined yr/yr as expected.
• We got our first look at FY25 guidance. FDX sees adjusted EPS of $20.00-22.00 with revs growing low-to-mid single-digits, which was roughly in-line with +3.2% analyst expectations. Revenue growth is expected to be driven by improving trends in US domestic parcel and international export demand. FDX expects FY25 yields to benefit from both improved base rates and increased fuel surcharges. FDX expects to continue seeing a pricing environment that is competitive but rational.
• FedEx expects the demand environment to moderately improve as it moves through FY25. Currently, FDX expects US domestic parcel and LTL volumes to continue to improve, with the yr/yr increase growing as the year progresses. International air cargo demand from Asia accelerated in early May and is stronger vs previous expectations. Shippers are facing tightened capacity both in air and sea freight services.
• As previously announced, its contract with the US Postal Service will expire on September 29. Until then, FDX expects volumes to be near contract minimums, consistent with what it saw in Q4.
• Beside earnings, the other big news was FDX announcing that it's working with outside advisors to conduct an assessment of FedEx Freight, which FDX expects to complete by the end of the calendar year. Freight is its smallest segment and revs fell 5.7% in FY24. Freight saw significant demand weakness in Q4. However, Freight is also its highest op margin segment at 20% in FY24 vs 11.8% for Ground and just 1.9% for Express. A potential sale would help growth but hurt margins.

Overall, investors clearly like what they see in FedEx's Q4 report and its FY25 outlook. We think investors were relieved to finally see yr/yr revenue growth return and finally see upside revenue results. Neither has happened in several quarters. Demand remains a headwind, but we think investors were pleased to hear FedEx say it expects the demand environment to moderately improve as it moves through the year. And finally, investors appear positive on the Freight segment review and potential sale.