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FedEx (FDX) Up 9.1% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for FedEx (FDX). Shares have added about 9.1% 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 Beats on Earnings in Q3

The company’s earnings (excluding 17 cents from non-recurring items) of $3.47 per share surpassed the Zacks Consensus Estimate of $3.21. The bottom line surged more than 100% year over year, driven by increased volumes at FedEx International Priority and U.S. domestic residential package services, as well as pricing initiatives across all transportation segments.

Quarterly revenues of $21,510 million outperformed the Zacks Consensus Estimate of $19,970.9 million and increased 23% year over year, primarily owing to higher volumes, thanks to coronavirus-driven increased demand for e-commerce. Operating income (on an adjusted basis) soared more than 100% year over year to $1.06 billion in the reported quarter due to pandemic-driven rise in demand for residential delivery services as well yield improvement. Operating margin (adjusted) also improved to 4.9% from 2.8% in the year-ago period.

Segmental Performance
Quarterly revenues at FedEx Express (including TNT Express) ascended 20.9% to $10.79 billion due to international export and U.S. domestic-package volume growth. Segmental operating income increased to $463 million from $137 million in the year-ago period. Also, segmental operating margin improved to 4.3% from 1.5% in third-quarter fiscal 2020.

FedEx Ground revenues surged 36.5% year over year to $7,980 million in the period under consideration, owing to residential delivery volume growth. Operating income came in at $702 million, augmenting 97.7% year over year. Segmental operating margin also improved to 8.8% from 6.1% in the prior-year quarter.

FedEx Freight revenues climbed 5.6% year over year to $1,836 million due to higher revenues per shipment and average daily shipments. The segment’s operating income ascended 5.3% to $119 million, thanks to focus on revenue qualitative initiatives. Operating margin was flat at 6.5%.

Outlook

For fiscal 2021, FedEx anticipates earnings per share, before the year-end MTM retirement plan accounting adjustment and debt-refinancing costs, in the band of $16.80-$17.40. Additionally, the company estimates fiscal 2021 earnings per share in the range of $17.60-$18.20, before the year-end MTM retirement plan accounting adjustment and debt-refinancing costs, and excluding TNT Express integration expenses, costs associated with business realignment activities and the second-quarter fiscal 2021 MTM TNT Express retirement plan accounting adjustment.

Effective tax rate, before the year-end MTM retirement plan accounting adjustment, is expected between 21-22%. Meanwhile, capital expenditures are predicted to be $5.7 billion in fiscal 2021, higher than $5.1 billion anticipated previously, due to acceleration in FedEx Ground capacity expansion initiatives among other factors.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 5.78% due to these changes.

VGM Scores

At this time, FedEx has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, FedEx has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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