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Why Is FedEx (FDX) Down 6.4% Since Last Earnings Report?

Wall Street finished in the green reversing its five-day negative trend on Thursday following news that United States and China have ramped up their efforts to resolve lingering trade disputes

A month has gone by since the last earnings report for FedEx (FDX). Shares have lost about 6.4% in that time frame, underperforming 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 earnings (excluding 36 cents from non-recurring items) of $3.46 per share missed the Zacks Consensus Estimate of $3.78. However, the bottom line soared 37.9% on a year-over-year basis. Results were aided by growth across all its transportation segments.

Quarterly revenues increased 11.5% year over year to $17,052 million, beating the Zacks Consensus Estimate of $16,879.5 million. Growth was witnessed across all major divisions of the company. Operating income (on an adjusted basis) climbed 9.2% year over year to $1.19 billion in the reported quarter. Meanwhile, operating margin declined to 7% from 7.1% recorded in first-quarter fiscal 2018.

Segmental Performance

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Quarterly revenues at FedEx Express (including TNT Express) improved 9.8% to $9.22 billion on the back of higher freight pounds, U.S. domestic package volume and yield growth, increase in fuel surcharges as well as other factors. Operating income came in at $367 million, up 14.7% year over year and operating margin increased to 4% from 3.8% in the year-ago quarter.

FedEx Ground revenues increased 13% year over year to $4.8 billion in the period under consideration. A 7% rise in average daily package volume and 6% increase in yields aided the segmental performance. Operating income came in at $667 million, up 10% while operating margin contracted 40 basis points (bps) to 13.9%.

FedEx Freight revenues jumped 18% year over year to $1.96 billion. Segmental revenues were benefited by a quarterly increase in revenue per shipment and average daily shipments of 8% and 9%, respectively. Also, the segment’s operating income climbed 7% to $176 million. However, operating margin contracted 90 bps to 9% in the quarter.

Bullish Fiscal 2019 Outlook

The company raised its earnings per share guidance for fiscal 2019. It now anticipates the same in the range of $17.20-$17.80, excluding pension adjustments and TNT Express integration expenses. Prior view was in the band of $17-$17.60.

The company continues to expect 9% increase in revenues and operating margin (excluding TNT Express integration expenses) is anticipated at around 8.5%. 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.

Meanwhile, the company continues to focus on improving its operating income by $1.2-$1.5 billion at the FedEx Express segment in fiscal 2020 from the fiscal 2017 level.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, FedEx has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 B. 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. 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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