Why Is FedEx (FDX) Down 10.5% Since its Last Earnings Report?

It has been about a month since the last earnings report for FedEx Corporation FDX. Shares have lost about 10.5% in that time frame.

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

Fourth-Quarter Earnings

The company’s earnings (excluding $1.76 from non-recurring items) of $5.91 per share comfortably surpassed the Zacks Consensus Estimate of $5.72. Furthermore, the bottom line soared substantially on a year-over-year basis. Results were aided by higher revenues.

Quarterly revenues increased 10.1% year over year to $17,314 million, beating the Zacks Consensus Estimate of $17,186 million. Growth was witnessed across all major divisions of the company.

Operating income (on an adjusted basis) climbed 14.9% year over year to $2 billion in the reported quarter. Also, operating margin expanded to 11.5% from 11.1% in fourth-quarter fiscal 2017.

Segmental Performance

Quarterly revenues at FedEx Express (including TNT Express) improved 9% to $9.60 billion on the back of better yields across the global portfolio of package and freight services besides higher freight pounds.

Operating income (adjusted, excluding TNT Express integration expenses) came in at $1.10 billion, up 13% year over year while operating margin increased to 11.5% year over year from 11% in the year-ago quarter.

FedEx Ground revenues increased 12% year over year to $4.80 billion in the period under consideration. A 6% rise in average daily package volume and higher base rates aided this segmental performance. Operating income came in at $832 million, up 18% while operating margin inched up 90 basis points (bps) to 17.3%.

FedEx Freight revenues jumped 16% year over year to $1.86 billion. Segmental revenues were benefited by 8% increase, each in revenue per shipment as well as average daily shipment. Also, the segment’s operating income surged 35% to $175 million. Plus, the operating margin expanded 130 bps to 9.4%.

Top & Bottom-Line Performance in Fiscal 2018

In fiscal 2018, the company reported earnings (on an adjusted basis) of $15.31 per share, exceeding the Zacks Consensus Estimate of $15.13. The bottom line also improved significantly from the prior-year figure, courtesy of the Tax Cuts and Jobs Act. Notably, the company received a benefit of $1.6 billion from the new tax law. Revenues rose 8.6% to $65.5 billion, outpacing the consensus mark of $65.4 billion.

Bullish Fiscal 2019 Outlook

The company anticipates earnings per share (excluding pension adjustments  and TNT Express integration expenses) of $17-$17.60 in fiscal 2019.  Additionally, the company projects approximately 9% increase in revenues while operating margin (excluding TNT Express integration expenses) is anticipated at around 8.5% (the recast fiscal 2018 operating margin is 7.8% excluding TNT Express integration expenses and certain other items). Further, the company expects effective tax rate of around 25% while capital expenses are estimated to be $5.6 billion, lower than $5.7 billion incurred in fiscal 2018.

FedEx’s fiscal 2019 results are likely to benefit from higher revenues as well as synergies drawn from the progress in TNT Express and FedEx Express integration. The company continues to focus on improving operating income by $1.2 to $1.5 billion at the FedEx Express segment in fiscal 2020 compared with that in fiscal 2017.

However, the mounting fears pertaining to a trade war are concerning and may hamper the free flow of goods between countries.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter compared to two lower.

FedEx Corporation Price and Consensus

FedEx Corporation Price and Consensus | FedEx Corporation Quote

VGM Scores

At this time, FDX has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was also allocated a grade of A on the value side, putting it in the top 20% 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.

Based on our scores, the stock is equally suitable for value, growth, and momentum investors.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions indicates a downward shift. 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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