(Reuters) -FedEx forecast 2025 profit above analysts’ estimates on Tuesday, anticipating that the cost reductions planned for the year would deliver margin gains even as revenue remains challenged by lackluster demand for parcel shipping.

Shares of the company rose more than 16% in trading after the bell, while those of rival United Parcel Service were up nearly 2%.

FedEx is merging its separate delivery businesses in a bid to improve efficiency at a time when the stubbornly soft global transportation market is seeing its profits dented.

FedEx said it cut nearly $1.8 billion in structural costs in the fiscal year ended May 2024 and was planning $2.2 billion more in permanent cost reductions by the end of fiscal 2025.

Its unprofitable U.S. Postal Service contract, which accounted for about $1.75 billion in revenue to FedEx during the fiscal year ended May 2023, will end this September.

The parcel delivery firm expects fiscal 2025 earnings per share to be in the range of $20.00 to $22.00, the midpoint of which is slightly above analysts’ estimate of $20.92 per share.

But the revenue side of the business remains challenging. Industrial production and parcel shipping demand – its two key business drivers – are lackluster as inflation and higher interest rates take a toll.

The company’s Express overnight delivery unit, its biggest, has been struggling with falling volumes as the USPS shifts packages from higher-margin air services to more economical ground services.

FedEx reported a combined revenue of $22.1 billion, marginally higher than last year’s $21.9 billion and slightly above analysts’ estimate of $22.06 billion.

(Reporting by Ananta Agarwal in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Pooja Desai)