Investors snap up FedEx bonds after strong earnings, strategic review of freight business

By Ciara Linnane

Spreads on the parcel-delivery company's bonds were tighter by 5 to 7 basis points

FedEx Corp.'s outstanding bonds saw net buying out of the gate on Wednesday, in a positive response to the company's better-than-expected fiscal fourth-quarter earnings and news of a strategic review of its freight business.

As the stock (FDX) soared 15% to put it on track for its biggest one-day gain in two years, spreads on its bonds had tightened by 5 to 7 basis points, as the following charts from data-solutions provider BondCliQ Media Services show.

Net client flows show net buying of the bonds.

Yields on the bonds have climbed this year with the move in Treasurys, with the 4.5% notes that mature in May 2030 showing the biggest gain of 29 basis points. The bonds are rated Baa2 by Moody's Investors Service and BBB by S&P Global Ratings.

FedEx has more than $20 billion of bonds outstanding, according to FactSet, after it succeeded in issuing longer bonds at low rates during the COVID-19 pandemic.

FedEx said late Tuesday it's seeking to cut costs by billions of dollars and to harmonize operations.

The company is expecting low- to mid-single-digit percent revenue growth year over year for fiscal 2025. Management forecast per-share earnings between $18.25 and $20.25 before adjustments related to pension plans.

The company over the past two years has dealt with a slowdown in shipping demand and a pullback in global industrial production, after inflation raised concerns about the world's economies. FedEx has pared back flight hours and laid off staff and is bracing for the loss of a big air-cargo customer, the U.S. Postal Service, in September.

Analysts weighing in on Wednesday said the strategic review may lead to a spinoff of the freight business, with Stifel equity analysts calling that a "tantalizing" possibility.

For more, read: FedEx cost cuts are delivering results, and potential freight spinoff is 'tantalizing': analysts

The stock has gained 15.8% in the year to date, outperforming the S&P 500 SPX, which has gained 14.5%.

-Ciara Linnane

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06-26-24 1056ET

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