FedEx (FDX; Baa2/BBB; S) FY24 (to May) Results

Freight business looks to be on the cards for a sale. Bonds do have asset sale restrictions on guarantor subsidiaries (which freight is) when they exceed 10% of group assets (unclear if it will). If breached it will be required to direct 100% of proceeds To debt paydowns OR broad-based capex - given co's normal capex runs north of $5b could limit any tailwinds for bonds. Outside that firm results but curve doesn't screen much value; La-poste (FRPTT; NR/A/A+) which on 100% French government ownership gets a 3-notch uplift from BBB standalone, trades wide of it (5Y) after recent sell-off. Rating upgrade potential is there for Fedex. Cheap views on the sector are on the IDSLN28s (Z+153) (preferred) and new PostNL31s (Z+183).

• FY4: $87.7b of revenues (-3%yoy), EBIT of $6.25b (+16%yoy, 7.1% margin which is +110bps), Capex of $5.2b (-16%yoy) leaving FCF of $4.1b which was nearly all directed to $3.8b in equity returns ($2.5b buyback, $1.3b dividends).
• BS was little changed on debt, $6.5b cash on hand, EBITDA & FCF to gross debt look to be holding in upgrade thresholds. Moody's also wanted operating margins in "upper single-digits" - unclear if 7% meets the bar.
• FY25 guidance is for low to MSD revenue growth (consensus 3%), cost reductions totalling $2.2b, capex of $5.2b (c$5.5b) and equity returns of $3.8b ($2.5b in buybacks) (c$3.9b).
• Seems to be "evaluating" FedEx Freight's existence in the portfolio (indicative of a potential spin-off or sale). Its 10% of revenues but 27% of group EBIT, analyst did try and squeeze management for more colour in the call - none given.
• Continuously references its "DRIVE" cost reduction program for margin improvements/offsets to headwinds. Reminder it announced cutting 1.7-2k staff in Europe (0.35-0.4% total) two weeks ago.

Equities were up +14% in US post-market trade, likely in part on the unch $3.8b in equity returns coming their way and slight EPS beat for FY25. € cash lines are -1-3bps tighter on the open.