12:39 PM EDT, 03/22/2024 (MT Newswires) -- FedEx ( FDX ) will continue focusing on controlling costs, a move it said aided in its fiscal third-quarter earnings surpassing expectations, as investors on Friday pushed the package delivery company's stock sharply higher.

"We saw while the revenue was soft, we're focused on quality revenue, the cost controls were solid and strong," Chief Financial Officer John Dietrich said about the company's third-quarter performance on the company's conference call late Thursday, according to a Capital IQ transcript.

FedEx ( FDX ) posted a revenue drop to $21.7 billion from $22.2 billion a year earlier, missing the $22.08 billion estimate compiled by Capital IQ. But adjusted per-share earnings for the quarter ended Feb. 29 increased to $3.86 from $3.41 a year ago, ahead of the $3.48 consensus estimate. Its operating margin of 5.7% expanded from 4.7% in the same quarter last year.

Revenue challenges included volume softness in freight and express, as well as a decrease in weight per shipment and lower fuel and demand surcharges at freight. However, "(for) the third consecutive quarter, we delivered operating income growth and margin expansion in a declining revenue environment," Chief Executive Raj Subramaniam told analysts. "This is a very positive dynamic and a unique one in our industry. It demonstrates clear progress on our transformation and ability to manage what's within our control through DRIVE."

DRIVE is the company's effort to consolidate its operating companies into a single, integrated air-ground network, which it plans to fully implement in June. Subramaniam said FedEx ( FDX ) delivered $550 million of cost savings from DRIVE in the third quarter. "Given the progress we have made year-to-date, we will deliver on our goal of $1.8 billion in permanent cost reduction benefits from DRIVE this fiscal year and are highly confident on the additional $2.2 billion in fiscal year (2025)."

Cost reductions included 5% fewer flight hours in the quarter that helped the company avoid certain maintenance costs, Dietrich said. FedEx ( FDX ) has decreased the size of its workforce by nearly 22,000 over the last year "and expect additional opportunities in the future as we move forward with our transformation," he added. FedEx ( FDX ) is still negotiating a contract with the US Postal Service. The current contract ends on Sept. 29. "I think we are days or weeks away from knowing if we will have a contract, not months," Brie Carere, co-CEO of FedEx Services and Chief Customer Officer of FedEx Corp. ( FDX ), told analysts.

FedEx's ( FDX ) "large" third-quarter earnings beat was primarily driven by the company's express unit, which delivered $256 million of operating income, UBS Securities said in a note. The result was better than the brokerage's forecast of a breakeven performance. "We recognize inflation and demand are areas of uncertainty, but Express appears to have potential for significant margin improvement" in fiscal 2025, UBS analysts led by Thomas Wadewitz said. They raised their fiscal 2025 and 2026 earnings estimates for FedEx ( FDX ).

For fiscal 2024, FedEx ( FDX ) said late Thursday it expected non-GAAP EPS of $15.65 to $16.65 before certain retirement plan adjustments, compared with its prior forecast of $15.35 to $16.85. The EPS outlook after excluding business optimization costs was narrowed to between $17.25 and $18.25 from the previous $17 to $18.50 range. At the time, analysts polled by Capital IQ projected normalized EPS at $17.44. FedEx ( FDX ) continues to expect a low-single-digit percentage fall in fiscal 2024 revenue year over year.

The FedEx ( FDX ) board approved a new $5 billion share repurchase program, in addition to the existing $600 million pending under the 2021 authorization. FedEx ( FDX ) shares were rising 7.3% during Friday's trading session, extending a rally seen late Thursday.

"We believe the majority of the stock move ... may be driven by the buyback announcement," driving short-covering as well as optimism that express may have bottomed, Morgan Stanley said in a note.

Price: 284.80, Change: +19.95, Percent Change: +7.53