Why FedEx stock was delivered to investors in March

fedex (FDX -0.73%) reported a strong quarter despite a challenging operating environment, resulting in rapid growth in its stock price. FedEx stock rose 16.4% in March on signs that the company's streamlining plans are on track, according to data provided by S&P Global Market Intelligence.

Saving the crisis by reducing costs

These are difficult times for shipping companies. A combination of high costs and slowing demand due to economic concerns will lead to a decline in business performance, and shareholders will flee FedEx stock in 2023.

But even as the macro economy takes a major hit, FedEx is not standing still. The company is working on ways to save billions of dollars annually through improved asset utilization and targeted headcount reductions.

Investors realized some of the benefits of that plan when third-quarter results were released in mid-March. FedEx easily beat Wall Street's profit estimates even though sales were lower than expected. The company's operating margin for the quarter was 6.2%, an improvement from 5.3% in the same period last year.

Management said the pace of cost reductions is on track to contribute to annual savings of approximately $1.8 billion this fiscal year and an additional $2.2 billion in fiscal 2025. The company expects to maintain its revenue, so it should continue to look for ways to grow more efficiently. The pressure is on for the near future.

Is FedEx stock a buy after strong March results?

CEO Raj Subramaniam was bullish about the company's plans, saying after the earnings call, “I've never been more confident in our path forward as we build a more flexible, efficient, and intelligent network.” FedEx is making the best of a difficult environment and wants to ensure high profitability when the economy brightens.

FedEx is an important part of the global economy, but investors need to understand and accept that the company's growth is tied to the economy. This is not a stock that is likely to grow its earnings by double digits every year. Also, the cyclical nature of the business means there will be periods of no revenue growth at all.

What FedEx can control is cost, and management seems to be doing a good job of that. It's also a cash-generating machine, offering investors his 1.8% dividend yield and his newly authorized $5 billion share buyback plan. The buybacks should help FedEx continue its trend of reducing its stock count by 14% over the past decade. Fewer shares means investors own more of the company with each share they own.

For investors looking for a steady stream of income with the potential to rise with the global economy, FedEx is a stock that deserves to be on your radar screen.