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FedEx (FDX) Up 2.6% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for FedEx Corporation FDX. Shares have added about 2.6% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is FDX due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Third-Quarter Fiscal 2018 Earnings

The company’s earnings (excluding $3.87 from non-recurring items) of $3.72 per share comfortably surpassed the Zacks Consensus Estimate of $3.08. Furthermore, the bottom line soared 58.3% on a year-over-year basis. Results were aided by higher revenues.

Quarterly revenues increased 10.2% year over year to $16,526 million, beating the Zacks Consensus Estimate of $16,179.7 million. Growth was witnessed across all major divisions of the company.

Operating income (on an adjusted basis) inched up 0.9% year over year to $1.11 billion in the reported quarter. However, operating margin contracted to 6.7% from 7.4% in third-quarter fiscal 2017.

Segmental Performance

Quarterly revenues at FedEx Express (including TNT Express) improved 9.3% to $9.37 billion, on the back of hiked base rates, higher fuel surcharges as well as favorable exchange rates.

Operating income (adjusted, excluding TNT Express integration expenses) came in at $510 million, down 16.4% year over year while operating margin decreased to 5.4% year over year from 7.1% in the year-ago quarter. Total package volume slipped 1% while average daily freight pounds rose 3%.

FedEx Ground revenues grew 11% year over year to $5.22 billion in the period under review. Volume expansion and higher base rates aided the segmental performance. Average daily volume climbed 6% whereas operating income came in at $634 million, up 23%. Operating margin expanded 110 basis points (bps) to 12.1%.

FedEx Freight revenues jumped 14% year over year to $1.69 billion. Segmental revenues were benefited by less-than-truckload (LTL) revenues per shipment growth of 8% average daily LTL shipment growth of 6%. Also, the segment’s operating income surged 34% to $55 million. Plus, the operating margin expanded 50 bps to 3.2%.

Q4 Fiscal 2018 Outlook

FedEx has issued guidance for operating income and margin for the fiscal fourth quarter. Additionally, it has provided an outlook for segmental operating margin. Each forecast assumes moderate economic growth.

The company estimates fourth-quarter consolidated operating income excluding TNT Express integration expenses and certain other items, in the range of $1.95-$2.05 billion. While operating margin excluding TNT Express integration expenses and certain other items, is projected at 11-11.8%.

For fourth-quarter fiscal 2018, the company forecasts adjusted operating margin (minus TNT Express integration expenses) at the FedEx Express segment between 9.9% and 10.4%. While at FedEx Ground and Freight segments, the metric (on a reported basis) is estimated between 17-17.5% and 8-9%, respectively.

The segmental margin predictions indicate the recent realignment of the company’s specialty logistics and e-commerce solutions with a new organizational structure within the FedEx Express segment.

Bullish Fiscal 2018 Projection

The company has raised its view for fiscal 2018 owing to foreign tax benefits from international corporate structure, better operating performance and gains from the tax reform. The company has also reiterated its commitment to increase operating income by $1.2-$1.5 billion in fiscal 2020 compared with the tally registered in fiscal 2017.

For fiscal 2018, the company anticipates earnings per share (excluding TNT Express integration expenses and certain other items) in the range of $15-$15.40, higher than the previous projection of $12.70-$13.30. The Zacks Consensus Estimate for fiscal 2018 earnings is pegged at $13.51.

Moreover, capital expenses are expected at $5.8 billion, down $100 million from the earlier guidance.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been six revisions higher for the current quarter.

FedEx Corporation Price and Consensus

 

FedEx Corporation Price and Consensus | FedEx Corporation Quote

VGM Scores

At this time, FDX has a subpar Growth Score of D. Its Momentum is doing a lot better with an A. The stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Our style scores indicate that the stock is more suitable for momentum investors than value investors.

Outlook

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


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