UPDATE 1-FedEx eyes double-digit profit growth for next three years

·3 min read

(Recasts headline and first paragraph with forecast, adds share movement)

By Lisa Baertlein

LOS ANGELES, June 29 (Reuters) - FedEx Corp said on Wednesday it expected adjusted profit to grow in double digits through 2025, as the global shipping firm looks to benefit from its strategy of delivering packages that bring in more money.

The company, which has been 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% between now and 2025, and revenue to grow 4% to 6%.

FedEx last week reported fiscal 2022 adjusted profit of $20.61 per share and revenue of $93.5 billion.

Shares of FedEx were up 1.4% before the bell, ahead of the company's investor day on Wednesday.

Raj Subramaniam, who succeeded FedEx founder Fred Smith on June 1, faces two competing groups - investors who want FedEx to wring more profits from its operations, and the company's Ground unit contractors who drive its growth and want more money to offset their rising costs.

FedEx's quarterly report last week offered a preview of things to come. FedEx executives battled softening package volume by focusing on higher-profit deliveries or "revenue quality", echoing the "better not bigger" mantra adopted by rival United Parcel Service two years ago.

However, a slowing economy could undermine the pandemic-era price increases required to execute that strategy and appease activist D. E. Shaw Group, analysts warn. Investors expect to hear more about how the Memphis-based company will grow during a possible recession.

So far, the shift is paying off for FedEx. Revenue in the latest quarter jumped 8% even as the company handled fewer packages.

FedEx Ground reported an 11% jump in revenue per package despite a 6% drop in average daily volume. Ground's least expensive and slowest "economy" service took the biggest hit, falling 36%.

That has seemingly made investors like activist D.E. Shaw Group happy. The hedge fund earlier this month gained two seats on FedEx's board and has been promised one more. The firm has not publicly shared its targets for FedEx.

Still, Ground contractors who handle the bulk of FedEx's home deliveries aren't sharing in the success. They depend on volume to help offset higher prices for gas, driver wages and delivering to far-flung residential addresses.

Jeff Walczak, CEO at Ground contractor consultancy eTruckBiz.com, says 20-25% of his clients are struggling to turn a profit - about double the normal rate.

"Most of the folks in this business have never seen a downturn in volume, and it's stinging them bad," Walczak said.

Many work on fixed one-year contracts and have had difficulty negotiating more money from FedEx. At the same time, FedEx now wants to shift the cost of lost and damaged parcels on to those operators, Walczak said. (Reporting by Lisa Baertlein in Los Angeles and additional reporting by Nathan Gomes in Bengaluru; editing by Richard Pullin and Shinjini Ganguli)

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