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FedEx Corporation (FDX - Analyst Report), one of the leading parcel delivery companies, is slated to release its second quarter fiscal 2013 results on Wednesday, December 19. The current Zacks Consensus Estimate for second quarter earnings is pegged at $1.40 per share, representing an annualized growth rate of (10.53%).

First-Quarter Flashback

FedEx’ first quarter adjusted earnings of $1.45 per share outpaced the Zacks Consensus Estimate of $1.40 and but missed the year-ago earnings by a penny. Earnings were largely hit by lackluster global economy that negatively impacted revenue growth.

Total revenue for the first quarter increased 3% year over year to $10.79 billion and surpassed the Zacks Consensus Estimate of $10.70 billion.

Agreement of Estimate Revisions

Estimate revisions for the second quarter and fiscal 2013 and 2014 have been skewed to the negative side over the last 30 days.

For the second quarter, out of 19 estimates one moved upward against 3 downward estimate revisions over the last 7 days. Similarly, in the last 30 days, 1 estimate was revised upward while 3 were revised downward.

For fiscal 2013, out of 21 estimates, no upward revision was made in the last 30 days. On the other hand, 4 downside revisions were made in the last 30 days.  

Following the trend, for fiscal 2014, out of 21 estimates, no upward movement was registered in the last 30 days. However, 2 estimates were revised downward in the last 7 30 days.

We believe that with the global economic meltdown and the debt crisis surrounding the eurozone, the 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 economy continues to register volatilities, which are expected to result in low business from this continent. Asian demand is also likely to remain suppressed. Further, fuel cost worries also contribute to a cautious stance on the company.

Magnitude of Estimate Revisions

For the second quarter, the magnitude of estimate revisions fell by a penny over the last 30 days to $1.40.

For fiscal 2013, the Zacks Consensus Estimate fell from $6.46 to $6.40 over the last 30 days.

For fiscal 2013, the Zacks Consensus Estimate remains pegged at $7.78, down from and $7.81 and $7.82 over the 7 and 30 days, respectively.

Earnings Surprises

The company has delivered positive earnings surprises over the trailing four quarters with an average 6.12% rise over estimated earnings.

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 in fiscal 2012. 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

FedExretains a Zacks #4 Rank, implying a short-term (1-3 months) Sell rating. For the long term, we have a Neutral recommendation on the stock.

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