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Will the FedEx (FDX) Stock Disappoint Again in Q2 Earnings?

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FedEx Corporation (FDX - Free Report) is set to release second-quarter fiscal 2020 results on Dec 17, after the market closes.

The Zacks Consensus Estimate for second quarter fiscal 2020 earnings has been revised 21.5% downward in the past 90 days. Moreover, the company has a disappointing earnings history, having missed the consensus mark in three of the trailing four quarters. Given this backdrop, let’s delve into the factors that might have impacted the company’s performance in the soon-to-be-reported quarter.

Persistent weakness in the global economy due to the ongoing trade tensions between the United States and China is likely to have affected the company’s primary revenue generating segment, FedEx Express, as has been the case over the last few quarters. Notably, the consensus estimate for Express segment revenues in the fiscal second quarter suggests a 3.7% decline from the reported figure in the second quarter of fiscal 2019. Similar to the first quarter of fiscal 2020, the segment’s results are expected to have taken a hit from the removal of the Amazon (AMZN - Free Report) contract (for providing the company with domestic express delivery services) on Jun 30.

Additionally, increased ground costs and the loss of business at the Ground unit due to FedEx’s decision to not renew its ground delivery contract with Amazon might get reflected in the company’s earnings.

Moreover, with FedEx investing significantly in facility upgrades, capital expenses are on an upswing. These high capital expenditures are likely to have weighed on the company’s bottom line in the quarter to be reported. Heavy TNT Express integration expenses might also reflect on the bottom-line number.

However, robust e-commerce growth is expected to have driven the company’s top line in the fiscal second quarter. The ground unit is likely to have put up an impressive show on the back of this tailwind. Evidently, the Zacks Consensus Estimate for Ground revenues indicates a 6% rise from the year-ago reported number.

FedEx Corporation Price and EPS Surprise

 

FedEx Corporation Price and EPS Surprise

FedEx Corporation price-eps-surprise | FedEx Corporation Quote


Earnings Whispers

The proven Zacks model does not conclusively predict an earnings beat for FedEx in the second quarter of fiscal 2020. 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. However, that is not the case here as elaborated below. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: FedEx has an Earnings ESP of -3.10% as the Most Accurate Estimate is pegged at $2.75, lower than the Zacks Consensus Estimate of $2.84. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank:  FedEx carries a Zacks Rank #4 (Sell).

Highlights of Q1 Earnings

In the last reported quarter, the company witnessed a negative earnings surprise of 3.8%. Quarterly revenues also lagged the Zacks Consensus Estimate. Moreover, both the top and the bottom line declined year over year. Sluggishness in the global economy as well as high costs affected the company’s results.

Stocks to Consider

Investors may consider the following stocks as they possess the right combination of elements to beat on earnings in the next quarterly release.

General Mills, Inc. (GIS - Free Report) has an Earnings ESP of +1.58% and a Zacks Rank #3. The company is scheduled to report second-quarter fiscal 2020 results on Dec 18.

Worthington Industries, Inc. (WOR - Free Report) has a Zacks Rank of 3 and an Earnings ESP of +5.78%. The company will announce second-quarter fiscal 2020 earnings numbers on Dec 17.

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