FedEx Corporation’s (FDX Quick QuoteFDX - Free Report) fourth-quarter fiscal 2016 (ended May 31, 2016) earnings per share (on an adjusted basis) of $3.30 beat the Zacks Consensus Estimate of $3.26. Higher-than-expected revenues drove the earnings beat. Earnings also increased 24.1% year over year.

Quarterly revenues climbed 7.4% year over year to $13 billion, surpassing the Zacks Consensus Estimate of $12.8 billion. Strong sales at the company’s Ground business boosted the top line in the fourth quarter.

Operating income (on an adjusted basis) improved 18% year over year to $1.51 billion in the quarter. This resulted in an operating margin of 11.7%, up 120 basis points (bps) from the year-ago quarter. The profit improvement program at the FedEx Express unit and volume expansion at the FedEx Ground unit boosted the operating results.

FEDEX CORP Price, Consensus and EPS Surprise

FEDEX CORP Price, Consensus and EPS Surprise | FEDEX CORP Quote

Segmental Performance

Quarterly revenues at FedEx Express totaled $6.72 billion, up marginally. Operating income was up 135% year over year to $757 million in the reported quarter, resulting in an operating margin of 11.3%, up 650 bps from the year-ago quarter. Operating results were positively impacted by yield management efforts, the presence of an additional operating day and the benefits from the profit improvement program.

FedEx Ground revenues increased 20% year over year to $4.29 billion in the fourth quarter. Volume expansion and higher ground revenue per package aided the segmental performance during the quarter. Operating income came in at $656 million, up 9%. Operating margin contracted 160 bps to 15.3%, hurt by the change in FedEx SmartPost revenue reporting.

FedEx Freight revenues increased 2% year over year to $1.61 billion. Less-than-truckload average daily shipments improved 8% and the benefit of an additional operating day more than offset the negative impact of lower fuel surcharges and weight per shipment. The segment recorded operating income of $137 million, flat year over year. Operating margin was 8.5%, down 20 bps. Segmental operating results were hurt by higher salaries and costs pertaining to employee benefits.

Annual Results

For fiscal 2016, the company reported earnings (on an adjusted basis) of $10.80 per share, beating the Zacks Consensus Estimate of $10.77. Earnings also improved 20.7% from fiscal 2015 levels. Revenues climbed 6.1% to $50.4 billion. Capital expenditure was $4.8 billion for fiscal 2016. Fiscal 2016 saw the company acquiring 18.2 million shares at an average price of $149.35.

FY17 Outlook

FedEx expects earnings per share in the band of $11.75–$12.25 for fiscal 2017. The current Zacks Consensus Estimate of $12.10 per share is within the guided range. However, it seems that the guidance failed to please investors as the stock declined in after-market trading on Jun 21 despite an earnings beat.

The guidance is based on the assumption of moderate economic growth and does not include the TNT Express financial results (net of integration expenses and financing costs). We note that FedEx completed the acquisition of TNT Express for €4.4 billion last month. Capital expenditure is projected at $5.1 billion for fiscal 2017. The projection excludes the potential investments in TNT Express.

Zacks Rank & Stocks to Consider

FedEx currently carries a Zacks Rank #3 (Hold). Investors interested in the broader transportation space may consider SkyWest, Inc. (SKYW Quick QuoteSKYW - Free Report) , Air France-KLM SA (AFLYY Quick QuoteAFLYY - Free Report) and GOL Linhas . SkyWest and Air France sport a Zacks Rank #1 (Strong Buy) while GOL carries a Zacks Rank # 2 (Buy).

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