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FedEx (FDX) Misses on Q3 Earnings, Trims FY19 EPS Guidance

Zacks Equity Research

FedEx Corporation FDX reported disappointing results in the third quarter of fiscal 2019 (ended Feb 28, 2019). Simultaneously, the company slashed its fiscal 2019 earnings per share guidance for the second time. Following this view cut, the stock declined more than 5% in after-hours trading on Mar 19.

FedEx now anticipates fiscal 2019 earnings per share in the range of $15.10-$15.90 excluding pension adjustments, TNT Express integration expenses and certain other items (prior view was in the $15.50-$16.60 band). The mid-point of the guided range — $15.50 — fell short of the Zacks Consensus Estimate of $15.90.

The company’s earnings (excluding 22 cents from non-recurring items) of $3.03 per share missed the Zacks Consensus Estimate of $3.10. Moreover, the bottom line declined 18.6% on a year-over-year basis. This downside was primarily due to a dismal performance of the company’s major revenue generating segment, FedEx Express.

FedEx Corporation Price, Consensus and EPS Surprise

 

FedEx Corporation Price, Consensus and EPS Surprise | FedEx Corporation Quote


Quarterly revenues increased 2.9% year over year to $17.01 billion but lagged the Zacks Consensus Estimate of $17.64 billion. The top line benefited from higher volumes across all transportation segments and increased yields at FedEx Ground and FedEx Freight segments.

Operating income (on an adjusted basis) improved 2.1% year over year to $984 million in the reported quarter. Meanwhile, operating margin remained flat at 5.8% in third-quarter fiscal 2019.

Segmental Performance

Quarterly revenues at FedEx Express (including TNT Express) slid 1% to $9 billion due to soft international revenues on sluggish macroeconomic conditions and a weak global trade. Operating income came in at $370 million, up 17% year over year. Also, operating margin inched up to 4.1% from 3.5% in the year-ago quarter.

FedEx Ground revenues increased 9% year over year to $5.26 billion in the period under consideration. Volume growth and higher yields aided this segmental performance. Operating income came in at $577 million, down 6% year over year while operating margin contracted to 11% from 12.7% in the prior-year quarter.

FedEx Freight revenues rose 8% year over year to $1.75 billion. Segmental revenues benefited from higher revenue per shipment and average daily shipments. Also, the segment’s operating income soared 98% to $97 million. Moreover, operating margin expanded 250 basis points to 5.5% in the quarter under review.

Outlook

Capital expenses are still anticipated at $5.6 billion for fiscal 2019 while effective tax rate is now expected between 22% and 23% (previous view: 24-25%). As part of the company’ cost-reduction initiatives, it anticipates a pre-tax charge of $450-$575 million in the fourth quarter of fiscal 2019 on account of a buyout program for U.S.-based employees. However, this program is estimated to generate approximately $225-$275 million in savings during fiscal 2020.

The company expects to incur TNT Express integration expenses of more than $1.5 billion through fiscal 2021. Of the total costs, fiscal 2019 is expected to spend $435 million, lower than the earlier estimate of $450 million.

Zacks Rank & Key Picks

FedEx carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the same space are Avianca Holdings S.A. AVH, Atlas Air Worldwide Holdings AAWW and Radiant Logistics, Inc. RLGT. While Avianca Holdings sports a Zacks Rank #1 (Strong Buy), Atlas Air Worldwide and Radiant Logistics carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Avianca Holdings, Atlas Air Worldwide and Radiant Logistics have rallied more than 8%, 16% and 42%, respectively, on a year-to-date basis.

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