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Why Is FedEx (FDX) Up 8.2% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for FedEx (FDX). Shares have added about 8.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is FedEx due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

FedEx Beats on Earnings in Q4

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.

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.

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.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 57.87% due to these changes.

VGM Scores

Currently, FedEx has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, FedEx has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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