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Why Is FedEx (FDX) Down 0.1% Since Last Earnings Report?

A month has gone by since the last earnings report for FedEx (FDX). Shares have lost about 0.1% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is FedEx due for a breakout? 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 drivers.

FedEx Misses on Earnings in Q1

The company’s first-quarter fiscal 2020 (ended Aug 31, 2019) adjusted earnings (excluding 21 cents from non-recurring items) of $3.05 per share missed the Zacks Consensus Estimate of $3.17. Moreover, the bottom line declined 11.8% year over year.
 
Quarterly revenues dipped marginally year over year to $17,048 million and also lagged the Zacks Consensus Estimate of $17,107 million. The top line was hampered by loss of business at the Express and Ground segments among other factors.

Operating income (on an adjusted basis) decreased 12.1% year over year to $1.05 billion in the reported quarter due to sluggish global economy and elevated costs. Operating margin also deteriorated to 6.1% in the fiscal first quarter from 7% a year ago.

Segmental Performance

Quarterly revenues at FedEx Express (including TNT Express) slid 3% to $8.95 billion due to slowdown in global economy and certain other factors. Operating income came in at $285 million, down 27% year over year. Also, operating margin slipped to 3.2% from 4.2% in the year-ago quarter.

FedEx Ground revenues rose 8% year over year to $5.18 billion in the period under consideration owing to volume growth and increased yields. Operating income came in at $644 million, down 5% year over year while operating margin contracted to 12.4% from 14.1% in the prior-year quarter.

FedEx Freight revenues decreased 3% year over year to $1.91 billion. Segmental revenues were hurt by a fall in average daily shipments. However, the segment’s operating income ascended 10% to $194 million. Moreover, operating margin expanded 120 basis points to 10.2% in the quarter under review.

Fiscal 2020 Outlook

FedEx anticipates earnings per share (prior to the year-end MTM retirement plan accounting adjustment and excluding TNT Express integration expenses) between $11 and $13.

Additionally, FedEx now forecasts effective tax rate (prior to the year-end MTM retirement plan accounting adjustment) in the range of 24-26%. Previously, the same was expected in the 23-25% band. The downside is due to lower earnings in certain non-U.S. jurisdictions. Meanwhile, the estimate for capita expenditures is fixed at $5.9 billion.

To counter the challenges posed by macroeconomic uncertainty, the company continues with its cost-reduction initiatives such as “post-peak reductions to the global FedEx Express air network to better match capacity with demand”. On the contrary, it continues to make investments aimed at boosting earnings, margins and cash flows in the long run through improved efficiency. Additionally, the company believes it will keep incurring significant TNT Express integration expenses through fiscal 2021.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -20.31% due to these changes.

VGM Scores

Currently, FedEx has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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.

Outlook

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 #4 (Sell). We expect a below average return from the stock in the next few months.


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