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FedEx (FDX) Down Over 2.5% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for FedEx Corp. (FDX - Free Report) . Shares have lost over 2.5% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Fiscal Second Quarter Earnings

FedEx's second-quarter fiscal 2017 (ended Nov 30, 2016) earnings per share (on an adjusted basis) of $2.80 fell short of the Zacks Consensus Estimate of $2.91. The bottom line was hurt by higher costs. Earnings, however, climbed 8.53% on a year-over-year basis.

Quarterly revenues climbed 19.9% year over year to $14,931 million, edging past the Zacks Consensus Estimate of $14,884 million. Strong sales at the company’s ground and freight divisions boosted the top line in the fiscal second quarter. Inclusion of the results of TNT Express also aided the top line. Operating income (on an adjusted basis) improved 2.5% year over year to $1.23 billion in the quarter. Higher base rates and the cost savings at the FedEx Express division as well as the inclusion of TNT Express results boosted operating income. Operating margin declined 130 basis points to 8.3% during the quarter.

Segmental Performance

Quarterly revenues at FedEx Express inched up 2% to $6.74 billion driven by increased base rates and higher package volume. Operating income surged 5% year over year to $654 million in the reported quarter. As a result, operating margin improved to 9.7%. Operating results were positively impacted by higher base yields and the cost efficiency-related efforts.

Revenues at the TNT Express segment came in at $1.9 billion during the quarter. Operating margin, on an adjusted basis, stood at 4.7%.

FedEx Ground revenues increased 9% year over year to $4.42 billion in the fiscal second quarter. Volume expansion and higher yields aided the segmental performance during the quarter. Average daily volume grew 5% in the second quarter mainly due to the growth in e–commerce.

Operating income came in at $456 million, down 12%. Operating margin depreciated 250 bps to 10.5%. Increased rent coupled with higher purchased transportation rates contributed to the lackluster segmental operating results.

FedEx Freight revenues grew 3% year over year to $1.6 billion. Less-than-truckload average daily shipments improved 3%, thereby offsetting the negative impact of lower weight per shipment. The segment’s operating income decreased 13% to $88 million. Operating margin was 5.5%, down 100 bps.

Fiscal 2017 View

The company still expects earnings in the band of $11.85–$12.35 per share, excluding TNT Express-related integration and Outlook restructuring program expenses, and TNT Express intangible asset amortization costs.

Including the impact of the acquisition of TNT Express, the company expects fiscal 2017 earnings in the band of $10.95–$11.45 per share, on an adjusted basis. The guidance assumes moderate economic growth. Capital expenses, including TNT Express buyout, are still projected at $5.6 billion. The company mentioned that the TNT Express integration process is on track and the procedure will take four years to be fully completed. The total expense for the integration program over the period is still expected in the range of $700 million to $800 million.

How Have Estimates Been Moving Since Then?

Since the earnings release, the stock has witnessed a downward trend in fresh estimates. There have been six revisions lower for the current quarter over the last 30 days.

FedEx Corp. Price and Consensus

FedEx Corp. Price and Consensus | FedEx Corp. Quote

VGM Scores

At this time, the stock has a strong Growth Score of 'A', though it is lagging a lot on the momentum front with a 'D'. However, the stock was allocated a grade of 'B' on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregte VGM score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock. Tthe magnitude of these revisions also indicates a downward shift. It's no surprise shares of FedEx carry a Zacks Rank #4 (Sell). We are looking for a below average return from the stock in the next few months.


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