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Will Ground Unit's Revenues Aid FedEx's (FDX) Q1 Earnings?

Zacks Equity Research

FedEx Corporation’s FDX Ground unit, which accounts for more than 30% of the company’s total revenues and around 59% of its operating income, is expected to be boosted by high revenues when it reports first-quarter fiscal 2021 results (ended Aug 31, 2020) . Notably, this is FedEx’s second-largest revenue-generating unit after the Express division.

FedEx Ground offers low-cost, day-certain service to any business address in the United States and Canada as well as residential delivery in the United States through its FedEx Home Delivery service.

Highlights of FedEx Ground’s Q4 Performance

FedEx Ground revenues rose 20% year over year to $6,394 million in fourth-quarter fiscal 2020 owing to residential delivery volume growth. Operating income came in at $673 million, declining 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.

Robust Revenues Likely to Reflect on FedEx Ground’s Q1 Results

The surge in e-commerce demand during the current coronavirus-ravaged times is likely to have boosted segmental revenues in the to-be-reported quarter. Fedex Ground volumes are likely to have been aided by a shift from commercial business to business to the business-to-consumer pattern.

Backed by e-commerce growth, the Zacks Consensus Estimate for revenues in the fiscal first quarter at the FedEx Ground unit stands at $6,157 million, indicating an increase of 18.9% from the reported figure in the year-ago quarter. Residential volume growth is likely to have driven Fedex Ground revenues in the quarter to be reported.

However, the Ground segment’s results for the fiscal first quarter are likely to reflect the impact of high expenses. This is because of the various investments like leveraging the seven-day Ground network, which was undertaken to maximize segmental capacity. Evidently, the Zacks Consensus Estimate for first-quarter operating income at the FedEx Ground unit stands at $653 million, implying a 2.9% dip from the number reported sequentially due to high costs.

Overall Earnings & Revenue Projections

Regarding FedEx, which competes with United Parcel Service UPS in the package delivery space, the Zacks Consensus Estimate for earnings in the fiscal first quarter is pegged at $2.54, hinting at a 16.7% decline from the prior-year quarter’s reported figure. For quarterly sales, the consensus mark of $17.46 billion suggests an increase of 2.4% from the year-earlier quarter’s reported number.

Our Take

While high costs are likely to reflect on the Ground segment’s results for the fiscal first quarter, soaring e-commerce volumes are likely to have contributed to revenues at FedEx Ground. Growth in business to consumer volumes and residential deliveries might have boosted this presently Zacks Rank #3 (Hold) company’s overall performance in the fiscal first quarter.

Stocks to Consider

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