In a positive turn of events for FedEx, the global delivery company has forecasted a fiscal 2025 profit that surpasses analysts' expectations. The company expects cost reductions planned for the year to drive margin gains, even as revenue continues to face challenges due to lackluster demand for parcel shipping.

As a result of this news, FedEx shares experienced a significant boost, surging 14.9% to $294.50 in extended trading. The delivery giant is targeting fiscal 2025 earnings of $20 to $22 per share, with the midpoint exceeding analysts' estimate of $20.92. This announcement helped assuage concerns among investors that cost-cutting measures and operational mergers were diminishing the company's gains.

FedEx's fourth-quarter earnings excluding items showed a growth of 7.2%, amounting to $1.34 billion, or $5.41 per share. Furthermore, the operating margin improved to 8.5%, compared to 8.1% in the same period the previous year. FedEx CEO Raj Subramaniam expressed optimism, stating, "These results are unprecedented in this current environment. We expect this momentum to continue in fiscal 2025."

The company's largest unit, Express overnight delivery, has been grappling with declining volumes as the U.S. Postal Service shifts packages from higher-margin air services to more cost-effective ground services. FedEx's unprofitable U.S. Postal Service contract, which generated around $1.75 billion in revenue for FedEx during the postal service's latest fiscal year, will conclude on September 29.

During the quarter, Express operating margin, excluding items, witnessed a decline to 4.1%, down from 5.0% the previous year. However, FedEx has previously indicated that eliminating costs associated with supporting postal service volume will enhance profitability in fiscal 2025 and beyond.

The market responded positively to FedEx's guidance, particularly in light of its decision not to renew its contract with the U.S. Postal Service. Louis Navellier, founder and chief investment officer of asset manager Navellier & Associates, remarked, "FedEx's guidance was impressive, given that it did not renew its contract with the U.S. Postal Service."

FedEx CEO Subramaniam, who took over from founder Fred Smith two years ago, has been diligent in reducing costs and merging the company's separate airplane- and truck-based delivery units, responding to pressure from activist investors. Nevertheless, the revenue side of the business continues to face challenges, as industrial production and parcel shipping demand remain lackluster due to the impact of inflation and higher interest rates.

In the fourth quarter, FedEx's revenue reached $22.1 billion, reflecting a 1% increase from the previous year and slightly surpassing analysts' estimate of $22.06 billion. Over the past 12 months, FedEx shares have seen a 10% gain, outperforming rival United Parcel Service, whose shares have dropped by 20%.

Overall, FedEx's optimistic projection for fiscal 2025, despite the prevailing challenges, has instilled confidence among investors and indicates the company's commitment to adapt and thrive in a changing market landscape.