FedEx Corp.’s shares jumped the most in nine months after the courier boosted its profit outlook, signaling efforts to cut costs are helping counter a decline in package volume.

Adjusted earnings this fiscal year will be $14.60 to $15.20 a share, up from a prior forecast of no more than $14, the Memphis, Tennessee-based company said. Analysts were expecting $13.57 on average, according to estimates compiled by Bloomberg.

“We’ve continued to move with urgency to improve efficiency, and our cost actions are taking hold, driving an improved outlook,” Chief Executive Officer Raj Subramaniam said in a statement late Thursday. FedEx also revealed third-quarter profit that topped Wall Street’s expectations.

Its shares surged 11% at 9:30 a.m. Friday in New York, the biggest intraday gain since June 14. The stock climbed 18% this year through Thursday’s close, well ahead of the S&P 500 Index’s increase.

The better-than-expected report triggered a number of upgrades to stock-price targets, including from analysts at TD Cowen, Citi and Susquehanna Financial. Cowen’s Helane Becker said in a note that FedEx is “well-positioned to see improving results in the second half of calendar 2023 and into 2024.”

Subramaniam has sought to cut costs and strengthen operations in response to weaker package volume as people return to stores and spend on more services following the pandemic. He previously ordered savings of up to $3.7 billion from its original annual spending plan, including shedding 10% of top management jobs. 

While the cuts have been across the board, the brunt of them have fallen to Express, the company’s largest unit. The courier has reduced flights and parked older planes as customers shift more cargo back to ships after supply-chain snags have eased. Volumes have also dropped at the Ground unit and FedEx Freight, the company’s trucking company.

Although demand has softened, FedEx has been able to maintain robust pricing, especially for ground deliveries, and had announced a general rate increase of 6.9% for this year, the largest such increase in its history.

Adjusted profit in the third quarter was $3.41 a share, FedEx said, beating the $2.71 average of analysts’ estimates. Revenue was $22.2 billion, compared with analysts’ projection of $22.7 billion.

Operating income sank 77% to $119 million at the Express business as global volume declined. That was offset in part by a 3% increase in revenue per package. The Ground unit had an 11% gain in revenue per package, which helped make up for lower volume. Operating income at the unit jumped 32% to $844 million in the quarter. 

Freight also saw an 11% increase of revenue per shipment and a one-time gain from the sale of a facility. The unit increased operating profit by 15% to $386 million. 

What Bloomberg Intelligence Says:

“Rates came in ahead of expectations for Ground and Freight, indicating price discipline, which should help mitigate the deleveraging effects from lower volumes on FedEx’s asset-intensive network. FedEx will likely remain light on details about its $4 billion DRIVE initiative until its April 5 analyst day.”

— Lee Klaskow, transportation & logistics analyst

Overall, adjusted operating margins were 5.3%, which while lower than a year ago was 100 basis points higher than analysts’ expectation. Cost cuts were the key. 

“Our improved earnings outlook demonstrates confidence in our ability to execute while managing the continued global volume softness we are experiencing across the business,” said Chief Financial Officer Michael Lenz in the statement.