Thursday, June 20, 2024

FedEx Stock Surges As Activists Win Board Seats, Dividend Boost Following Fred Smith Departure

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Updated at 3:44 pm EST

FedEx  (FDX) – Get FedEx Corporation Report shares surged higher Tuesday after the world’s biggest parcel delivery group unveiled a board shakeup just weeks after the departure of founder Fred Smith and boosted its quarterly dividend by more than 50%. 

FedEx, which has been under recent activist pressure from shareholders D.E. Shaw Group, said it would add three new members to its board of directors while reducing its planned capex-to-revenue targets in order to return more cash to investors. The group will also more closely align executive pay to shareholder returns. 

FedEx will also boost its quarterly dividend to $1.15 per share, from a prior payout of 75 cents per share, to stockholders of record as of the close of business on June 27. The payout is planned for July 11.

“The increased dividend we announced today is the culmination of our Board’s thoughtful efforts over many months to ensure that our capital allocation strategy reflects our confidence in the trajectory of the business and increases returns for our stockholders,” said CFO Michael Lenz. “We look forward to sharing more detail on our strategy and long-term objectives at our investor day later this month.”  

Stock Market Today – 6/14: Stocks Bounce From Bear Market Lows; Rate Traders Flip Fed Rate Hike BetsFedEx shares were marked 14.4% higher in late-afternoon trading Tuesday to change hands at $229.90 each, a move that would leave the stock with a year-to-date decline of around 11%.

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Founder and former CEO Smith, 77, was replaced by chief operating officer Raj Subramaniam in late March.

Subramaniam, a long-time FedEx executive who has toiled in the group’s complicated supply chain, will assumed CEO duties on June 1. 

The 54-year-old Subramaniam faces many of the same challenges in his new role as investors look for profit margin improvement in FedEx’s Ground division, which continues to lag rival United Parcel Service  (UPS) – Get United Parcel Service Inc. Report amid rising labor and transport fuel costs.

FedEx reiterated its full year profit forecast in March, guiding investors to earnings in the region of $20.50 to $21.50 per share, following a modestly weaker-than-expected fiscal third quarter.

FedEx earned $4.59 per share over the three months ending in February, thanks to a $350 million hit linked to Covid-linked pilot shortages that limited airfreight capacity, even as revenues rose 10% from last year to $23.6 billion.

“We are laser focused on improving our margins,” Subramaniam told investors on a conference call earlier this month. “Staffing levels and the rapid acceleration in labor costs have stabilized and our network is operating at normal levels.”

“Despite improvement in the labor headwind, volume levels in Q3 were softer than we had previously forecasted, in part due to omicron surge slowing customer demand,” he added. “As such, we expect our second half Ground margins will be lower than our previous expectations and not reach double digits.”

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