After reporting lower-than-expected earnings per share in two successive quarters, Memphis, TN-based FedEx Corporation (FDX - Free Report) came up with an impressive performance in the fourth quarter of fiscal 2017 (ended May 31, 2017). Results were aided by strong sales across all divisions at FedEx.
The company’s earnings (on an adjusted basis) of $4.25 per share handily beat the Zacks Consensus Estimate of $3.89. Furthermore, the bottom line expanded 28.8% on a year-over-year basis.
Quarterly revenues climbed 21.2% year over year to $15,728 million surpassing the Zacks Consensus Estimate of $15,563.8 million. Apart from strong growth in online shopping, inclusion of the results of TNT Express boosted the top line. The outperformance pleased investors. Consequently, the stock gained in after-market trading on Jun 20.
Operating income (on an adjusted basis) improved 16.6% year over year to $1.76 billion in the quarter. The improvement was driven by higher base rates, increased package volumes and the inclusion of TNT Express. However, operating margin declined 50 basis points (to 11.2% during the quarter.
FedEx said on the conference call that it expects to perform very well in the holiday season for 2017. It has already started to prepare for what it anticipates to be a “record peak season”. Furthermore, the company stated that it is in the process of analysing the pricing issue during the peak holiday season and has reached no final decision unlike rival United Parcel Service, Inc. (UPS - Free Report) . We note that United Parcel recently announced its decision to levy surcharges on U.S. residential packages in selected weeks during the holiday season (November/December) this year.
Quarterly revenues at FedEx Express climbed 7% to $7.18 billion driven by increased base rates and higher package volume. While, operating income came in at $909 million, operating margin improved to 12.6% in the reported quarter. These results were backed by higher base rates, package volume growth and the cost efficiency-related efforts.
Revenues at the TNT Express segment came in at $1.91 billion during the quarter. Operating margin, on an adjusted basis was 4.4%.
FedEx Ground revenues increased 9% year over year to $4.68 billion in the fiscal fourth quarter. In fact, volume expansion and higher base rates aided the segmental performance during the quarter. Average daily volume grew 3% in the fiscal fourth quarter mainly due to the growth in e–commerce. Operating income came in at $702 million, up 7%. Operating margin depreciated marginally to 15%.
FedEx Freight revenues grew 6% year over year to $1.7 billion. Segmental revenues were aided by increased base rates and fuel surcharges. However, the segment’s operating income decreased 3% to $133 million. Also, operating margin was 7.8%, down 70 bps, hurt by higher costs.
For fiscal 2017, the company reported earnings (on an adjusted basis) of $12.30 per share, beating the Zacks Consensus Estimate of $11.96. Earnings also improved 13.9% from fiscal 2016 levels. Revenues climbed 19.6% to $60.3 billion, beating the Zacks Consensus Estimate of $60.18 billion. Capital expenditure was $5.1 billion for fiscal 2017. Notably, fiscal 2017 saw the company acquiring 2.96 million shares at an average price of $172.13.
Fiscal 2018 View
The company expects earnings in the band of $13.20–$14 per share, excluding TNT Express-related integration and year-end MTM pension accounting adjustments. The Zacks Consensus Estimate for fiscal 2018 is currently pegged at $13.54 per share. The guidance assumes moderate economic growth.
Capital expenses are projected at $5.9 billion. The company will spend a significant amount as it aims to modernize its fleet. FedEx mentioned that the TNT Express integration process is on track and the procedure will take three years more to be fully completed.
FedEx Stock Performs Well
Notably, shares of FedEx have outperformed the Zacks categorized Transportation - Air Freight industry so far this year. While, the stock rallied 14.7%, the industry gained only 0.3%.
The strong earnings report is another positive for the stock.
Zacks Rank & Key Picks
FedEx carries a Zacks Rank #3 (Hold). Better-ranked stocks in the broader transportation space include Air France-KLM SA (AFLYY - Free Report) and Deutsche Lufthansa AG (DLAKY - Free Report) . Both the companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Air France-KLM and Deutsche Lufthansa rallied over 50% and 36%, respectively, over the last three months.
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