Earnings Preview: FedEx Corp.

FedEx Corporation ( FDX - Analyst Report ) , a leading parcel delivery company, is slated to release its fourth quarter and fiscal 2012 results on Tuesday, June 19. The current Zacks Consensus Estimate for fourth quarter earnings is pegged at $1.92 per share.

Third-Quarter Flashback

FedEx' third quarter adjusted earnings of $1.55 per share outpaced the Zacks Consensus Estimate of $1.36 and the year-ago earnings of 81 cents. The outperformance was attributable to strong yields, record holiday shipping and a remarkable performance by FedEx Ground.

Total revenue for the third quarter increased 9% year over year to $10.56 billion but missed the Zacks Consensus Estimate of $10.63 billion.

Agreement of Estimate Revisions

Estimates revisions for the fourth quarter and fiscal 2012 and 2013 have been skewed to the negative side over the last 7 and 30 days.

For the fourth quarter, out of 19 estimates none moved upward in last seven or 30 days. Further, no downward change has been seen in last 7 days. However, 2 estimates moved downward in last 30 days.

For fiscal 2012, out of 19 estimates, 1 each showed upward movement in last 7 and 30 days. One downside revision was made in the last 7 days and 3 estimates moved downward in the last 30 days.

For fiscal 2013, out of 21 estimates, no upward movement was registered in the last 7 and 30 days. However, 2 and 5 of the estimates were reviewed downwards in last 7 days and 30 days, respectively.

We believe that with the global economic meltdown alongside the debt crisis surrounding the eurozone, analysts remain conservative over the company’s earnings expectation. Despite strong growth prospects, margin performance of the Express segment is expected to remain subdued due to demand shift to the lower-margin-generating Ground business.

Furthermore, the European economies remain volatile, which are expected to result in less business for FedEx. Asian demand is also likely to stay suppressed. Fuel cost worries also contribute to a cautious stance on the company.

Magnitude of Estimate Revisions

For the fourth quarter, the magnitude of estimate revisions remained unchanged over the last 7 days at $1.92. However, it dropped by a penny over the last 30 days.

For fiscal 2012, the Zacks Consensus Estimate remained unchanged at $6.50 over the last seven days but dropped by a penny from $6.51 over the last 30 days.

For fiscal 2013, the Zacks Consensus Estimate is pegged at $7.43, 2 cents and 3 cents down from the last 7 and 30 days, respectively.

Earnings Surprises

With respect to earnings surprise, over the trailing four quarters, FedEx outperformed the Zacks Consensus Estimate on three occasions, averaging 4.58% overall.

The current Zacks Consensus Estimate for the to-be reported quarter contains a downside risk of 2.08%. For fiscal 2012, the Zacks Consensus has an upside potential of 0.31%. For fiscal 2013, the Zacks Consensus Estimate is skewed downside with a 1.08% risk factor.

Our Recommendation

Despite moderate economic growth, we believe FedEx is poised to benefit from improved pricing, volume growth, continued yield improvement and diminishing cost headwinds. These would lead to improved revenue, margins, earnings and cash flow over the long-term. However, increased investments, competitive threats from industry giants like United Parcel Service ( UPS - Analyst Report ) , unionized workforce and steeper fuel prices could limit the upside potential of the stock.

We are currently reiterating our long-term Neutral rating on FedEx. The stock retains a Zacks #3 Rank (Hold) for the short term.