It has been about a month since the last earnings report for FedEx (FDX - Free Report) . Shares have added about 8.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is FedEx due for a pullback? 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.
FedEx Misses on Earnings in Q2
The company’s second-quarter fiscal 2020 adjusted earnings (excluding 38 cents from non-recurring items) of $2.51 per share missed the Zacks Consensus Estimate of $2.79. Moreover, the bottom line plunged 37.7% year over year.
Quarterly revenues dipped 2.8% year over year to $17.32 billion and also lagged the Zacks Consensus Estimate of $17.57 billion. The top line was hampered by loss of business “from a large customer” (supposedly Amazon) and macroeconomic weakness.
Operating income (on an adjusted basis) dropped approximately 49% year over year to $684 million in the reported quarter due to sluggish global economy and elevated costs. Operating margin (adjusted) also deteriorated to 3.9% from 7.5% in the year-ago period.
Quarterly revenues at FedEx Express (including TNT Express) slid 5% to $9.08 billion due to lower freight revenues as a result of the slowdown in global economy and certain other factors. Operating income came in at $236 million, down 63% year over year. Also, operating margin slipped to 2.6% from 6.6% in the year-ago quarter.
FedEx Ground revenues rose 3% year over year to $5.32 billion in the period under consideration owing to residential delivery volume growth. Operating income came in at $342 million, slumping 42% year over year while operating margin contracted to 6.4% from 11.5% in the prior-year quarter.
FedEx Freight revenues decreased 4% year over year to $1.84 billion. Segmental revenues were hurt by a fall in average daily shipments. The segment’s operating income also slipped 5% to $141 million. Moreover, operating margin contracted 10 basis points to 7.6% in the quarter under review.
Fiscal 2020 Outlook
The company slashed its fiscal 2020 adjusted earnings outlook on expectations of lower revenues at each of the transportation segments and increased costs due to expansion of 7-day delivery service at the Ground unit (the Ground unit costs are expected to be reduced in the fiscal fourth quarter). FedEx’s earnings (prior to the year-end MTM retirement plan accounting adjustment and excluding TNT Express integration expenses) are now anticipated to be $10.25-$11.50 per share. During the first quarter of fiscal 2020 earnings release, the company trimmed its fiscal 2020 earnings view to $11-$13.
Effective tax rate (prior to the year-end MTM retirement plan accounting adjustment) is now estimated to be 23-26% compared with 24-26% anticipated previously. Meanwhile, the estimate for capital expenditures is fixed at $5.9 billion. The company expects to incur heavy TNT Express integration expenses through fiscal 2021 and thereafter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -19.45% due to these changes.
Currently, FedEx has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise FedEx has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.