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Will Q1 Earnings be a Dampener for the FedEx (FDX) Stock?

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FedEx Corporation (FDX - Free Report) is set to report first-quarter fiscal 2018 results after the closing bell on Sep 19.

Last quarter, FedEx — a leading player in the field of global express delivery services — posted a positive earnings surprise of 9.3%.The company’s earnings (on an adjusted basis) of $4.25 per share comfortably beat the Zacks Consensus Estimate of $3.89. The bottom line also 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. Results were aided by strong sales across all divisions at FedEx.

Let’s see how things shape up for this announcement.

Factors Likely at Play

High costs are likely to hurt the company’s results in the first quarter. Costs related to integration process of TNT express are expected to hamper the bottom line growth in the soon-to-be-reported quarter. In fact, FedEx mentioned that the TNT Express integration process will take three years more to reach full completion.

Per the company’s claims, the cyber attack on Jun 28, which has disrupted operations at its TNT Express division, is anticipated to hit results in the quarter to-be-reported.

In view of the rapid e-commerce growth, FedEx intends to spend heavily to ensure a record-breaking 2017 peak season. The company will also spend a significant amount on fleet modernization. This high capital expenditure further adds to the company’s woes and raises concerns for first-quarter results.

However, the company’s efforts to reward shareholders through dividend payments and share buybacks are impressive. In June, the company hiked its quarterly dividend by 25% to 50 cents a share (or $2 annually) from 40 cents (or $1.60 annually). 

Shares of FedEx have been struggling of late. The stock has inched up a mere 1.9%, significantly underperforming the industry’s 5.1% gain in the last three months.

Earnings Whispers

Our proven model does not conclusively show that FedEx is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as elaborated below.

Zacks ESP: FedEx has an Earnings ESP of -5.05%. This is because the Most Accurate Estimate is pegged at $3.01 per share, while the Zacks Consensus Estimate is poised at $3.17. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: FedEx has a Zacks Rank #4 (Sell). We caution against all Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

FedEx Corporation Price and EPS Surprise

 

FedEx Corporation Price and EPS Surprise | FedEx Corporation Quote

Stocks to Consider

Investors interested in the broader Transportation sector may consider the following stocks, which per our model possess the right combination of elements to deliver an earnings beat in their upcoming releases.

GATX Corporation (GATX - Free Report) has an Earnings ESP of +2.27% and a Zacks Rank #2.

Kansas City Southern (KSU - Free Report) has an Earnings ESP of +1.24% and a Zacks Rank #3.

Canadian National Railway Company (CNI - Free Report) has an Earnings ESP of +2.34% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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