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FedEx (FDX) Stock Up on Q3 Earnings Beat and Raised View

FedEx Corporation's FDX third-quarter fiscal 2023 (ended Feb 28) earnings (excluding 37 cents from non-recurring items) of $3.41 per share beat the Zacks Consensus Estimate of $2.67. However, the bottom line declined 25.7% year over year due to persistent demand weakness, especially at FedEx Express.

Driven by its cost-saving plan, which is expected to accelerate in the fiscal fourth quarter, management raised its earnings outlook for fiscal 2023. FDX now expects earnings per share for 2023 (prior to MTM retirement plans accounting for adjustments and excluding estimated costs related to business optimization initiatives and costs related to business realignment activities) between $14.6 and $15.2 (earlier guidance: $13-$14). The Zacks Consensus Estimate is currently pegged at $13.53.

The earnings beat and the raised outlook pleased investors. As a result, the stock gained significantly in after-hours trading on Mar 16.

Coming back to the quarterly results, revenues of $22,169 million fell short of the Zacks Consensus Estimate of $23,643.9 million and decreased 6.4% from the year-ago fiscal quarter’s reported figure. The top line was hurt by global volume softness, at each of FDX’s transportation segments.

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Operating expenses (reported basis) decreased 5.3% to $21.1 billion owing to the company’s cost reduction actions. Expenses pertaining to salaries and employee benefits declined 5.1% in the fiscal third quarter. Purchased transportation expenses decreased 16%, while fuel expenses rose 11%. Other operating expenses inched down 1.4%.

Operating income, on a reported basis and on an adjusted basis, decreased 27% and 24.8% to $1.04 billion and $1.17 billion, respectively, from the year-ago fiscal quarter’s reported number due to weak shipping demand. Operating margin (adjusted) declined to 5.3% from 6.2% in the year-ago fiscal period.

Segmental Performance during the Quarter

FedEx Express segment’s revenues fell 8% year over year to $10,345 million, owing to decreased global volumes. Operating income of the segment fell 77% year over year, owing to lower global volumes, partially offset by an 3% increase in revenue per package.

FedEx Ground segment’s revenues decreased 2% year over year to $8,658 million. Operating income increased 32% year over year, owing to 11% increase in revenue per package and cost reduction actions.

FedEx Freight revenues declined 3% from the year-ago fiscal quarter’s reported figure to $2,186 million. The segment’s operating income grew 15% year over year due to 11% increase in revenue per shipment.

Average daily shipments declined 12%, while revenue per shipment increased 11%. Capital expenditures for the quarter came in at $ 1,278 million, up 3%.

Liquidity

FedEx exited third-quarter fiscal 2023 with cash and cash equivalents of $5,373 million compared with $6,897 million recorded as of May 31, 2022. Long-term debt (less current portion) was $20,122 million compared with $20,182 million as of May 31, 2022.

Other Aspects of Fiscal 2023 Outlook

FDX anticipates capital spending of $5.9 billion in fiscal 2023. Effective tax rate is estimated to be between 25% and 26%.

Currently, FDX carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Recap of Recent Results From the Industry

Below we present the latest quarterly results of United Parcel Service UPS and Air Transport Services ATSG , which belong to the same industry as FedEx.

United Parcel Service’s fourth-quarter 2022 earnings of $3.62 per share beat the Zacks Consensus Estimate of $3.58 and improved 0.8% year over year. Revenues of $27,033 million fell short of the Zacks Consensus Estimate of $27,946.6 million and decreased 2.7% year over year.

UPS’ overall adjusted operating profit fell 3.3% year over year to $3,822 million in the fourth quarter. UPS generated $3,332 million of cash from operating activities in the fourth quarter. Capital expenditure was $2,491 million. Free cash flow was $566 million.

Air Transport Services’ fourth-quarter 2022 earnings of 53 cents per share missed the Zacks Consensus Estimate of 57 cents. However, the bottom line inched up 1.9% year over year. Revenues rose 10.5% year over year to $533 million and surpassed the Zacks Consensus Estimate of $520.1 million.

ATSG’s total operating expenses increased 14.4% to $460.5 million with fuel expenses increasing 30.1% as oil price rises. Adjusted EBITDA increased 5.1% year over year to $162.7 million. Operating cash flow decreased to $74.1 million from $1454.3 million a year ago.

Adjusted free cash flow was $32.6 million compared with $72.6 million a year ago. Capex was $56.5 million compared with $120.8 million in fourth-quarter 2021.

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