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FedEx (FDX) to Report Q2 Earnings: What's in The Cards?

FedEx Corporation FDX is set to release second-quarter fiscal 2019 results after the closing bell on Dec 18.

Last reported quarter, the company came up with a negative earnings surprise of 8.5%. However, it delivered better-than-expected revenues. Moreover, both the metrics improved significantly on a year-over-year basis. Results were aided by growth across all its transportation segments.

The Zacks Consensus Estimate for earnings in the fiscal second quarter has been revised 1.2% downward in the last 90 days.
 
Let’s delve into the factors likely to influence its fiscal second quarter results.

As has been the case in the last few quarters, the bottom line in the soon-to-be-reported quarter is likely to remain under pressure due to high costs. With FedEx investing significantly to upgrade facilities at its key divisions, capital expenses are on the rise. Moreover, integration expenses pertaining to TNT Express are further pushing up costs.

In the wake of the US-China trade war, a sudden slowdown in economic activity can’t be ruled out. In fact, during first-quarter fiscal 2019 conference call, the FedEx CEO had raised concerns over the issue and even revealed that some sluggishness in economic activity in China could be felt. Thus, with the company’s exposure in China, the turmoil might affect its revenues in the to-be-reported quarter.
 
However, the company has been benefiting from solid e-commerce growth, boosting its top line in turn and the second quarter of fiscal 2019 is likely to be no different. Notably, the Zacks Consensus Estimate for revenues in the fiscal second quarter at the FedEx Express (including TNT Express) segment stands at $9,739 million compared with $9,354 million a year ago. The same for the Freight segment is projected at $1,883 million, much higher than $1,762 million in the prior year. Also, the consensus mark for revenues at the Ground unit is pegged at $5,044 million, above $4,929 million in the second quarter of fiscal 2018.

FedEx Corporation Price and EPS Surprise

 

FedEx Corporation Price and EPS Surprise | FedEx Corporation Quote


Earnings Whispers

Our proven model does not conclusively show that FedEx is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as elaborated below.

Zacks ESP: FedEx has an Earnings ESP of -2.82%. This is because the Most Accurate Estimate is pegged at $3.94 per share, lower than the Zacks Consensus Estimate of $4.05. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: FedEx has a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about a likely earnings surprise. Thus, this combination leaves surprise prediction inconclusive for the stock.

We caution against Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Investors interested in the broader Transportation sector may consider the following stocks with the right combination of elements to beat on earnings in the upcoming releases:

American Airlines Group AAL has an Earnings ESP of +4.80% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Allegiant Travel Company ALGT has an Earnings ESP of +3.06% and is a Zacks Rank #3 Ranked player.

Kansas City Southern KSU has an Earnings ESP of +1.26% and a Zacks Rank of 3.

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