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FedEx (FDX) Stock Down on Q1 Earnings Miss, FY22 View Dull

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FedEx Corporation’s (FDX - Free Report) first-quarter fiscal 2022 (ended Aug 31, 2021) earnings (excluding 27 cents from non-recurring items) of $4.37 per share missed the Zacks Consensus Estimate of $4.96. The bottom line declined 10.27% year over year due to supply-chain disruptions and a tight labor market.

Adding to its woes, the package delivery company lowered its earnings per share view for fiscal 2022 due to escalating costs and supply-chain issues. For fiscal 2022, FedEx now anticipates earnings per share, before the year-end MTM retirement plan accounting adjustment, and exclusion of the estimated TNT Express integration expenses and costs associated with business realignment activities, in the band of $19.75-$21 (earlier view: $20.50-$21.50).The midpoint of the revised guided range is $20.375, down from the Zacks Consensus Estimate of $21.27. Due to the disappointing bottom-line performance and the guidance cut, shares of the company fell 4.5% in after-hours trading on Sep 21.

Quarterly revenues in the quarter came in at $22,003 million. As a saving grace, the top line outperformed the Zacks Consensus Estimate of $21,806.3 million and increased 13.88% year over year, primarily owing to higher volumes on the rise in demand for freight services. Operating income (on an adjusted basis) declined 9.1% year over year to $1.49 billion in the reported quarter. Operating margin (adjusted) also dipped to 6.8% from 8.5% in the year-ago period.

FedEx Corporation Price, Consensus and EPS Surprise

FedEx Corporation Price, Consensus and EPS Surprise

FedEx Corporation price-consensus-eps-surprise-chart | FedEx Corporation Quote

Segmental Performance

Quarterly revenues at FedEx Express (including TNT Express) improved14% to $10,966 million owing to higher revenue per package and growth in FedEx International Priority and U.S. domestic express packages. Segmental operating income declined 20% year over year to $567 million. Segmental operating results were hurt by higher operating expenses due to labor shortages and coronavirus-related air network issues. Results were also dented by a decline in the U.S. average daily freight pounds due to a surge in the charter flights a year ago.

FedEx Ground revenues increased 9% year over year to $7,677 million in the period under consideration owing to higher revenues per package apart from an uptick in commercial packages. Operating income came in at $671 million, decreasing 20% year over year. Segmental operating results were hurt by escalated labor costs and network inefficiencies stemming from staffing shortages. Operating results were also affected by higher expansion-related expenses.

FedEx Freight revenues climbed 23% year over year to $2,251 million, driven by higher volumes and an enhanced revenue quality. The segment’s operating income ascended 42% to $390 million, courtesy of an intensified focus on revenue qualitative and cost-control initiatives. Average daily shipments in the unit increased 12% and revenue per shipment ascended 11% in the quarter under review.

Capital expenditures in the quarter increased 10% to $1.57 billion due to the company’s investments pertaining to its strategies for profitable growth, service excellence and the modernization of its digital and IT platforms.

Outlook

For fiscal 2022, FedEx anticipates earnings per share in the range of $18.25-$19.50 (earlier guidance: $18.90-$19.90), before the MTM retirement plan accounting adjustments. Effective tax rate, before the year-end MTM retirement plan accounting adjustment, is expected to be approximately 24% in fiscal 2022. Capital expenditures are still predicted to be $7.2 billion in fiscal 2022, indicating a rise from $5.88 billion incurred in fiscal 2021. The capital spending will primarily be aimed at capacity expansion at the Ground unit, fleet and facility modernization, and increased automation. Management expects labor shortages to persist in the remainder of 2021. Per Raj Subramaniam, FedEx’s president, chief operating officer and director, "Overcoming staffing and retention challenges is our utmost priority."

Zacks Rank & Stocks to Consider

FedEx currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Zacks  Transportation  sector are  Schneider National (SNDR - Free Report) , Landstar System (LSTR - Free Report)   and TFI International (TFII - Free Report) , all carrying a Zacks Rank #2 (Buy), presently. You can see  the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term expected earnings per share (three to five years) growth rate for Schneider National, Landstar and TFI International is pegged at 17.9%, 12% and 31.6%, respectively.