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Holiday Volumes Likely to be Low at FedEx's (FDX) Ground Unit

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FedEx Corporation (FDX - Free Report) has been hit hard so far by the economic slowdown, thanks to the high interest-rate scenario, as inflation in the United States remains sky-high.

To tame the red-hot inflation, the Fed has hiked interest rates 300 basis points so far this year. The central bank vowed to raise interest rates further to drag down inflation to its 2% target at best by 2025. Soaring interest rates will continue to increase the cost of borrowing, which in turn, will persistently affect consumer spending.

Per a CNBC report, according to an internal memo obtained by Reuters, at FedEx’s Ground segment, which handles e-commerce deliveries for many retailers, management aims to trim volume-projections for the upcoming holiday season as its customers plan to ship fewer holiday packages.

This update on possible lower volumes during the holiday season at one of the key units of FedEx was given to FDX’s 6,000 independent contractors that handle delivery and trucking for its Ground unit in the United States and Canada. The anticipation of a below-par performance this holiday season is the latest setback for FedEx, shares of which have plunged 28.3% in the past month due to inflation-related woes compared with the industry’s decline of 22.2%.

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Late last month, FedEx reported lower-than-expected earnings per share due to the global volume weakness. To bolster the top line despite weak demand for package deliveries globally, FedEx announced higher package rates.

Zacks Rank & Key Picks

FedEx currently carries a Zacks Rank # 5 (Strong Sell).

Some better-ranked stocks in the Zacks Transportation sector are ZTO Express (Cayman) (ZTO - Free Report) and Forward Air Corporation (FWRD - Free Report) , both currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ZTO Express is being aided by rapid growth in parcel volumes. ZTO anticipates parcel volumes in the range of 24.96-25.86 billion in 2022, indicating a rise of 12-16% from the year-ago reported figure. Its efforts to reward its shareholders are also encouraging.

The Zacks Consensus Estimate for ZTO Express’ 2022 earnings has been revised 4.4% upward in the past 60 days. Earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 29.1%.

Higher volumes owing to a better freight market environment bolster Forward Air’s top line. Thanks to growth in its operations, FWRD is committed to rewarding its shareholders with dividends and share buybacks. In February, FWRD’s board approved a 14% hike in its quarterly dividend payment, taking the total to 24 cents per share.

The Zacks Consensus Estimate for Forward Air’s 2022 earnings has been revised 3% upward in the past 60 days. FWRD’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 5.6%.

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