Key Takeaways From FedEx's 3rd-Quarter Results
- By Mayank Marwah
FedEx Corp. (FDX) released its third-quarter earnings after the market closed on March 19.
In addition to missing analysts' expecatitions, the courier service issued weak fiscal 2019 guidance for the second time since December as a result of the slowdown in global trade.
In a statement, Executive Vice President and Chief Financial Officer Alan B. Graf Jr. commented on the company's performance.
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"Slowing international macroeconomic conditions and weaker global trade growth trends continue, as seen in the year-over-year decline in our FedEx Express international revenue," he said.
Key metrics
The company posted earnings of $3.03 per share, missing Wall Street's estimates of $3.11. Revenue grew 2.9% from the prior-year quarter to $17.01 billion, but fell short of the $17.67 billion expected. The top line got a boost from huge volumes across all transporttion sectors.
Operating income was $984 million, up 2.1% on a year-over-year basis. The operating margin was 5.8%.
How did the segments fare?
Sales at FedEx Express, including TNT Express, came in at $9 billion, reflecting a 1% decline on a year-over-year basis. Worldwide revenue was lower owing to slowing global macroeconomic conditions and weaker global trade. Operating income stood at $370 million, up 17% from the same quarter last year. The operating margin surged to 4.1%.
FedEx Ground revenue was $5.26 billion, up 9%. Higher top-line growth was attributable to volume growth and higher yields. Operating income plunged 6% to $577 million. Meanwhile, the operating margin dropped to 11%.
The Freight division saw revenue grow 8% to $1.75 billion thanks to higher revenue per shipment and average daily shipments. The segment's operating income grew 98% to $97 million. The operating margin inched up 250 basis points to 5.5%.
FedEx bullish on growth
The company looks poised for long-term success despite issuing weak guidance. The company is focusing on gaining a competitive advantage in the e-commerce space, reducing costs and improving revenue quality. It is also investing in innovative automation, thereby ensuring lower costs.
"We're enhancing our networks and building specific solutions to improve profitability, such as expanding the footprint and convenience of a retail network, with FedEx Onsite, driving growth in the FedEx Delivery Manager enrollment and leveraging our FedEx Ground six-day network year-around," CEO Frederick W. Smith said.
The company also addressed whether Amazon (AMZN) poses a threat in the shipping arena. According to Rajesh Subramaniam, president and CEO of FedEx Express, Amazon accounted for less than 1.3% of the company's total revenue for the 12-month period ended Dec. 31 .
Financial forecast
Capital expenditure is expected to come in at $5.6 billion for fiscal 2019, while the effective tax rate is projected to be between 22% and 23%. Through 2021, the company sees TNT Express integration expenses of more than $1.5 billion.
Disclosure: I do not hold any positions in the stocks mentioned.
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This article first appeared on GuruFocus.
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