FedEx Packs Q3 Profit Up 63%, Best In 3 Years
FedEx's quarterly profit growth was the strongest in three years. But shares fell Wednesday as revenue came in lower than expected and the shipping giant gave a weak earnings outlook.
The No. 2 U.S. package shipper's fiscal third-quarter earnings per share minus one-time items jumped 63% to $2.01, beating estimates by 14 cents a share.
Revenue grew 3.5% to $11.7 billion, missing views for $11.79 billion. FedEx (FDX) largely blamed the stronger dollar that shrank overseas sales.
It was a demanding quarter, CEO Fred Smith said on the post-earnings conference call, citing "tough winter weather and labor disruptions in West Coast ports.
The latter required FedEx to reroute around the Western ports as supply chains were disrupted.
Freight revenue grew 6% to $1.43 billion in Q3. Ground shipping was up 12% to $3.39 billion, and Express shipping sales flattened to $6.66 billion vs. $6.67 billion a year ago.
Margins rose sharply, helped by lower fuel costs.
Outlook Implies Soft Q4
But the Memphis, Tenn.-based shipper issued cautious full-year guidance, citing the currency headwinds. Its outlook implied Q4 EPS of $2.78, far below the Wall Street consensus for $2.86.
No. 1 shipper UPS (UPS) also warned in January of lower earnings this year, citing rising pension expenses and unfavorable currency rates.
Michael Glenn, FedEx head of market development, said the company forecasts 3.1% U.S. GDP growth this year and global economic growth of 2.8%.
"We started to see some impact on trade to and from the U.S." from currency headwinds, he said. "However, I would say it's still a bit early to talk about significant shifts in trade patterns.
Robert W. Baird analyst Ben Hartford told IBD: "There's no doubt the strong dollar will have negative impact as related to U.S. import activity" this quarter. "But we think it will be superseded by FedEx's multiyear profit-improvement plan.
FedEx launched a three-year, $1.7 billion profit-improvement plan in late 2012. It focuses mainly on cutting costs and boosting volumes. CEO Smith said that the program is "moving ahead as scheduled.
Hartford kept an "outperform" rating on FedEx shares with a 190 price target.
Earnings Growth Accelerated
FedEx shares gapped down as much as 3% early but recovered to close 1.4% lower at 173.30. The stock fell below its 50-day moving average but is still in a flat base going back to Dec. 8. UPS rose 0.7%.
S&P Capital IQ analyst Jim Corridore saw Wednesday's sharp early drop as an overreaction.
"We see an opportunity this quarter for significant margin expansion on improving volume" and cost-cutting, he said. Corridore has a strong buy rating with a 240 price target.
FedEx stock has been consolidating for more than two months, even though earnings growth generally accelerated. Over the last four quarters, earnings growth climbed from 15% to 37%, 36% and 63% last quarter.
