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FedEx Hasn't Been Delivering Results: Can a New CEO Help?
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When taking a peek at the Zacks Transportation – Air Freight and Cargo industry, nearly all companies have had a positive return in the market over the last year, except one well-known name.
FedEx (FDX - Free Report) , the shipping and logistics giant, has vastly struggled to catch its footing and has been on a downwards trajectory since hitting an all-time high of $316 per share in May 2021. The company’s shares have declined nearly 25% to around $230.
However, yesterday, FDX CEO and founder Fred Smith announced that he would be stepping down and handing the torch to Raj Subramaniam, perhaps suggesting that new leadership can turn things around. First, let’s look at one of the major issues that have been dragging the company down.
TNT Integration Issues
Flipping the pages back a few years, FedEx acquired TNT Express in May 2016 in a deal valued at $4.8 billion. The acquisition was expected to spur growth across Europe, but the company’s integration has been complicated for FedEx and has ended up costing them millions.
The deal was supposed to bolster FedEx’s position in the European e-commerce market. FedEx’s Express global air network, paired with TNT’s intra-European road system, was envisioned as a global one-stop shipping hub for European and non-European companies. Lastly, the acquisition pushed United Postal Service (UPS - Free Report) out of the bidding for TNT, essentially giving them a leg-up on one of its main rivals.
Issues surfaced almost immediately. TNT’s information technology and physical infrastructure were reportedly outdated, and the company’s sales were weak around the time of the acquisition. A shrinking top line was attributed to a sluggish European economy in the second half of the decade and low-income types of freight pushed by TNT.
A cyber-attack targeted TNT’s servers in 2017, causing many of its largest customers to leave for competitors. FedEx claimed that TNT had recovered fully from the cyberattack and that the original goals would still be met, but in December 2018, the company acknowledged that a sharp decline in profits was a result of lower shipping volumes in Europe and restructuring issues within TNT’s customer portfolio. In return, shares took a beating, ending the December 2018 month down 30%.
Fast-forward to 2019, a lawsuit hit the tape, claiming that FedEx’s top management had intentionally misled and falsified reports and statements that hid millions in losses following the cyberattack that targeted TNT. FedEx was expected to incur total integration expenses of $1.7 billion through FY21, twice what was initially expected. Integration of TNT is still an ongoing headache for FedEx, with the air network is finally expected to be fully integrated in 2022.
New Leadership
Investors are hopeful that Raj Subramaniam’s stellar track record can help propel the company back in the right direction after a year of unfavorable performance. “His international leadership experience, keen business insights, and focus on globalization have contributed to the success of FedEx and provide a blueprint as the company revolutionizes the transportation and logistics industry,” FedEx said in a press release.
Investors took the news well, FDX closed up 4% on the day. Now, let’s take a look into the financial state of the company and its performance over the last year.
Financial Analysis
The leadership shakeup comes at a crucial time for FedEx. The company has struggled over its last four quarters, reporting EPS below expectations three times with an average EPS surprise of -0.11%. In its latest quarter, it reported quarterly EPS of $4.59 per share and missed the $4.69 per share estimate by 2%.
Quarterly sales estimates have been exceeded in each of its last four quarters. FedEx reported quarterly revenue of $23.6 billion in its latest quarter, representing quarter-over-quarter sales growth of 0.7%. The quarter's results benefitted from lower variable compensation expenses and less severe winter weather, and overall, the top line grew by 22% from 2020 to 2021. The chart below illustrates quarterly revenue over the last two years.
Image Source: Zacks Investment Research
FedEx Ground, Express, and Freight are the company’s three main segments. Year-over-year, revenues from its Express service increased by 18%, Ground revenue increased by 34%, and Freight service revenue increased by 10%. Additionally, Q3 operating income benefitted from a net fuel benefit at all transportation segments and higher revenue per shipment, reporting a value of $1.3 billion and representing a 33% increase year-over-year.
Downwards estimate revisions have come in over the last 60 days, decreasing next quarter’s EPS estimate by 2.4% to $6.77 and the subsequent quarter’s 2.2% to $5.17. Current and next fiscal year’s EPS estimates have retraced as well, down 1.3% to $20.54 per share and 2% to $22.74 per share, respectively. Additionally, the company expects its bottom line to grow by 12% over the next three to five years.
FedEx Corporation Price, Consensus and EPS Surprise
FedEx is currently a Zacks Rank #3 (Hold) with an overall VGM Score of an A.
Final Thoughts
How has FedEx compared to its main rival, UPS (UPS - Free Report) ?
UPS shares have done quite the opposite of FDX, increasing by an impressive 35% in value over the previous year. The company sports an average EPS surprise of 25% over its last four quarters and beat expectations by 15% in its latest earnings report.
Over the last 60 days, UPS's current full-year earnings estimate has increased 7.5% to $12.81 per share, and next year’s EPS estimate has increased by 4.4% to $13.23 per share. Additionally, UPS is a Zacks Rank #3 with an overall VGM Score of a B.
Image Source: Zacks Investment Research
Overall, FedEx shares have struggled in the market compared to its peers since reaching their all-time high in May of last year. The company has struggled to find consistency within quarterly reports, earnings estimates have decreased, high labor and transportation costs have eaten into margins, supply-chain woes have disrupted operations, and the company’s overall capital expenditures has increased at a fast rate.
Image Source: Zacks Investment Research
Most importantly, FedEx has and expects to incur significant expenses through fiscal 2022 in connection with its integration of TNT Express. All of these factors have majorly affected FedEx’s performance over the last year, but management is expecting earnings growth for Q4 to be very impressive. Additionally, with a newly appointed CEO, the parcel giant has the opportunity to shake off its woes and walk down a more prosperous path in the future.
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FedEx Hasn't Been Delivering Results: Can a New CEO Help?
When taking a peek at the Zacks Transportation – Air Freight and Cargo industry, nearly all companies have had a positive return in the market over the last year, except one well-known name.
FedEx (FDX - Free Report) , the shipping and logistics giant, has vastly struggled to catch its footing and has been on a downwards trajectory since hitting an all-time high of $316 per share in May 2021. The company’s shares have declined nearly 25% to around $230.
However, yesterday, FDX CEO and founder Fred Smith announced that he would be stepping down and handing the torch to Raj Subramaniam, perhaps suggesting that new leadership can turn things around. First, let’s look at one of the major issues that have been dragging the company down.
TNT Integration Issues
Flipping the pages back a few years, FedEx acquired TNT Express in May 2016 in a deal valued at $4.8 billion. The acquisition was expected to spur growth across Europe, but the company’s integration has been complicated for FedEx and has ended up costing them millions.
The deal was supposed to bolster FedEx’s position in the European e-commerce market. FedEx’s Express global air network, paired with TNT’s intra-European road system, was envisioned as a global one-stop shipping hub for European and non-European companies. Lastly, the acquisition pushed United Postal Service (UPS - Free Report) out of the bidding for TNT, essentially giving them a leg-up on one of its main rivals.
Issues surfaced almost immediately. TNT’s information technology and physical infrastructure were reportedly outdated, and the company’s sales were weak around the time of the acquisition. A shrinking top line was attributed to a sluggish European economy in the second half of the decade and low-income types of freight pushed by TNT.
A cyber-attack targeted TNT’s servers in 2017, causing many of its largest customers to leave for competitors. FedEx claimed that TNT had recovered fully from the cyberattack and that the original goals would still be met, but in December 2018, the company acknowledged that a sharp decline in profits was a result of lower shipping volumes in Europe and restructuring issues within TNT’s customer portfolio. In return, shares took a beating, ending the December 2018 month down 30%.
Fast-forward to 2019, a lawsuit hit the tape, claiming that FedEx’s top management had intentionally misled and falsified reports and statements that hid millions in losses following the cyberattack that targeted TNT. FedEx was expected to incur total integration expenses of $1.7 billion through FY21, twice what was initially expected. Integration of TNT is still an ongoing headache for FedEx, with the air network is finally expected to be fully integrated in 2022.
New Leadership
Investors are hopeful that Raj Subramaniam’s stellar track record can help propel the company back in the right direction after a year of unfavorable performance. “His international leadership experience, keen business insights, and focus on globalization have contributed to the success of FedEx and provide a blueprint as the company revolutionizes the transportation and logistics industry,” FedEx said in a press release.
Investors took the news well, FDX closed up 4% on the day. Now, let’s take a look into the financial state of the company and its performance over the last year.
Financial Analysis
The leadership shakeup comes at a crucial time for FedEx. The company has struggled over its last four quarters, reporting EPS below expectations three times with an average EPS surprise of -0.11%. In its latest quarter, it reported quarterly EPS of $4.59 per share and missed the $4.69 per share estimate by 2%.
Quarterly sales estimates have been exceeded in each of its last four quarters. FedEx reported quarterly revenue of $23.6 billion in its latest quarter, representing quarter-over-quarter sales growth of 0.7%. The quarter's results benefitted from lower variable compensation expenses and less severe winter weather, and overall, the top line grew by 22% from 2020 to 2021. The chart below illustrates quarterly revenue over the last two years.
Image Source: Zacks Investment Research
FedEx Ground, Express, and Freight are the company’s three main segments. Year-over-year, revenues from its Express service increased by 18%, Ground revenue increased by 34%, and Freight service revenue increased by 10%. Additionally, Q3 operating income benefitted from a net fuel benefit at all transportation segments and higher revenue per shipment, reporting a value of $1.3 billion and representing a 33% increase year-over-year.
Downwards estimate revisions have come in over the last 60 days, decreasing next quarter’s EPS estimate by 2.4% to $6.77 and the subsequent quarter’s 2.2% to $5.17. Current and next fiscal year’s EPS estimates have retraced as well, down 1.3% to $20.54 per share and 2% to $22.74 per share, respectively. Additionally, the company expects its bottom line to grow by 12% over the next three to five years.
FedEx Corporation Price, Consensus and EPS Surprise
FedEx Corporation price-consensus-eps-surprise-chart | FedEx Corporation Quote
FedEx is currently a Zacks Rank #3 (Hold) with an overall VGM Score of an A.
Final Thoughts
How has FedEx compared to its main rival, UPS (UPS - Free Report) ?
UPS shares have done quite the opposite of FDX, increasing by an impressive 35% in value over the previous year. The company sports an average EPS surprise of 25% over its last four quarters and beat expectations by 15% in its latest earnings report.
Over the last 60 days, UPS's current full-year earnings estimate has increased 7.5% to $12.81 per share, and next year’s EPS estimate has increased by 4.4% to $13.23 per share. Additionally, UPS is a Zacks Rank #3 with an overall VGM Score of a B.
Image Source: Zacks Investment Research
Overall, FedEx shares have struggled in the market compared to its peers since reaching their all-time high in May of last year. The company has struggled to find consistency within quarterly reports, earnings estimates have decreased, high labor and transportation costs have eaten into margins, supply-chain woes have disrupted operations, and the company’s overall capital expenditures has increased at a fast rate.
Image Source: Zacks Investment Research
Most importantly, FedEx has and expects to incur significant expenses through fiscal 2022 in connection with its integration of TNT Express. All of these factors have majorly affected FedEx’s performance over the last year, but management is expecting earnings growth for Q4 to be very impressive. Additionally, with a newly appointed CEO, the parcel giant has the opportunity to shake off its woes and walk down a more prosperous path in the future.