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FedEx (FDX) Shares Rally on Q4 Earnings & Revenues Beat

Zacks Equity Research

Despite coronavirus-related woes, FedEx Corporation FDX reported better-than-expected results for fourth-quarter fiscal 2020 (ended May 31), thanks to higher Ground revenues owing to surge in residential delivery volumes. Following this outperformance, shares of the company gained 9.1% in after-hours trading on Jun 30.

FedEx’s earnings (excluding $3.8 from non-recurring items) of $2.53 per share surpassed the Zacks Consensus Estimate of $1.42. However, the bottom line plunged approximately 50% year over year. Results were affected by coronavirus-led low volumes due to large-scale business closures, higher costs at the Ground unit due to expanded service offerings, as well as loss of business with Amazon AMZN.

Although quarterly revenues of $17,358 million beat the Zacks Consensus Estimate of $16,116.8 million, the same dipped 2.5% year over year. Operating income (on an adjusted basis) plunged 47.3% year over year to $907 million in the reported quarter due to sluggish global economy and elevated costs. Operating margin (adjusted) also deteriorated to 5.2% from 9.6% in the year-ago period.

FedEx Corporation Price, Consensus and EPS Surprise

Segmental Performance

Quarterly revenues at FedEx Express (including TNT Express) declined 10% to $8,560 million due to 14% decline in package revenues as a result of the slowdown in global economy among other factors. Segmental operating income (adjusted) decreased to $392 million from $837 million a year ago. Also, segmental operating margin contracted to 4.6% from 8.8% in fourth-quarter fiscal 2019, on an adjusted basis.

FedEx Ground revenues surged 20% year over year to $6,394 million in the period under consideration owing to residential delivery volume growth. Operating income came in at $673 million, slumping 17% year over year due to 27% increase in segmental operating expenses. Segmental operating margin shrank to 10.5% from 15.2% in the prior-year quarter.

FedEx Freight revenues declined 17% year over year to $1,615 million due to softness in volumes. The segment’s operating income also dropped 32% to $132 million, despite 16% decline in operating expenses. Moreover, operating margin contracted to 8.2% from 9.9% in the year-ago quarter.

Outlook

The company anticipates capital expenditures of approximately $4.9 billion in fiscal 2021, indicating a 17% decline from fiscal 2020. The anticipated reduction in capital expenses is due to lower spending on vehicle replacement and deferral of facility investments.

The company is expected to incur TNT Express integration expenses of approximately $1.7 billion through fiscal 2022. In fiscal 2021, $175 million of the total amount is estimated to be incurred.

Zacks Rank & Key Picks

FedEx carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are Scorpio Tankers Inc STNG and Frontline Ltd FRO. While Frontline sports a Zacks Rank #1 (Strong Buy), Scorpio Tankers carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Scorpio Tankers’ current-year earnings has been revised upward by 55% in the past 60 days.

The Zacks Consensus Estimate for Frontline’s current-year earnings has been revised 17.1% upward in the past 60 days.

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Click to get this free report Amazon.com, Inc. (AMZN) : Free Stock Analysis Report FedEx Corporation (FDX) : Free Stock Analysis Report Frontline Ltd. (FRO) : Free Stock Analysis Report Scorpio Tankers Inc. (STNG) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research