Shares of FedEx Corporation (FDX - Free Report) have plunged 35.3% in 2018, wider than the industry’s 25.1% decline.
Reasons Behind the Downslide
The United States-China trade war has wreaked havoc at FedEx. This is because the company has a substantial presence in China. To strengthen its foothold in the country, last January, it opened a hub in Shanghai.
Trading activities are said to have weakened in China. Further adding to the woes is the softness in the European economy. Such issues have forced FedEx to trim its earnings per share guidance for fiscal 2019 (ending May 31, 2019). It now anticipates the same in the range of $15.50-$16.60 excluding pension adjustments and TNT Express integration expenses. Prior view was in the band of $17.20-$17.80.
Moreover, the company will not be able to achieve its objective of raising its Express segment operating income by $1.2-$1.5 billion in fiscal 2020. Additionally, realization of benefits from TNT Express acquisition will be delayed. Apart from a sluggish European economy, this downside can be attributed to a change in service mix induced by the TNT Express cyberattack in June 2017.
Additionally, a global slowdown in trade over the past few months has deteriorated the Express unit’s performance. Further, the segment’s growth is anticipated to remain under pressure as there are evidences of the turbulence persisting in the near term.
Apart from trade war worries, the company’s high capital expenses are a cause for concern. With FedEx investing significantly in facilities’ upgrade at its key divisions, capital expenses are on an upswing. Capex is expected to be $5.6 billion for fiscal 2019. Additionally, integration expenses pertaining to TNT Express are pushing up the costs.
FedEx projects TNT Express integration charges of approximately $1.5 billion through 2020. Of these costs, approximately $450 million is estimated to be incurred in 2019. The company might further incur additional integration costs after 2020. These high costs in turn, are likely to hamper the company's bottom-line growth.
Due to these headwinds, the Zacks Consensus Estimate for the company’s current-quarter earnings has declined 17.5% over the last 60 days. The same for fiscal 2019 earnings has been revised 8.3% downward over the same time frame.
Zacks Rank & Key Picks
FedEx carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader Transportation sector are United Continental Holdings (UAL - Free Report) , Spirit Airlines (SAVE - Free Report) and Azul (AZUL - Free Report) . While United Continental holds a Zacks Rank #2 (Buy), Spirit Airlines and Azul flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of United Continental, Spirit Airlines and Azul have rallied more than 24%, 29% and 16%, respectively, in 2018.
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