It has been about a month since the last earnings report for FedEx (FDX). Shares have added about 1% in that time frame, underperforming 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 Misses on Earnings in Q1
The company’s earnings (excluding 27 cents from non-recurring items) of $4.37 per share missed the Zacks Consensus Estimate of $4.96. The bottom line declined 10.27% year over year due to supply-chain disruptions and a tight labor market. Quarterly revenues in the quarter came in at $22,003 million. As a saving grace, the top line outperformed the Zacks Consensus Estimate of $21,806.3 million and increased 13.88% year over year, primarily owing to higher volumes on the rise in demand for freight services. Operating income (on an adjusted basis) declined 9.1% year over year to $1.49 billion in the reported quarter. Operating margin (adjusted) also dipped to 6.8% from 8.5% in the year-ago period.
Quarterly revenues at FedEx Express (including TNT Express) improved14% to $10,966 million owing to higher revenue per package and growth in FedEx International Priority and U.S. domestic express packages. Segmental operating income declined 20% year over year to $567 million. Segmental operating results were hurt by higher operating expenses due to labor shortages and coronavirus-related air network issues. Results were also dented by a decline in the U.S. average daily freight pounds due to a surge in the charter flights a year ago.
FedEx Ground revenues increased 9% year over year to $7,677 million in the period under consideration owing to higher revenues per package apart from an uptick in commercial packages. Operating income came in at $671 million, decreasing 20% year over year. Segmental operating results were hurt by escalated labor costs and network inefficiencies stemming from staffing shortages. Operating results were also affected by higher expansion-related expenses.
FedEx Freight revenues climbed 23% year over year to $2,251 million, driven by higher volumes and an enhanced revenue quality. The segment’s operating income ascended 42% to $390 million, courtesy of an intensified focus on revenue qualitative and cost-control initiatives. Average daily shipments in the unit increased 12% and revenue per shipment ascended 11% in the quarter under review.
For fiscal 2022, FedEx now anticipates earnings per share, before the year-end MTM retirement plan accounting adjustment, and exclusion of the estimated TNT Express integration expenses and costs associated with business realignment activities, in the band of $19.75-$21 (earlier view: $20.50-$21.50).
Additionally, FedEx anticipates earnings per share in the range of $18.25-$19.50 (earlier guidance: $18.90-$19.90), before the MTM retirement plan accounting adjustments. Effective tax rate, before the year-end MTM retirement plan accounting adjustment, is expected to be approximately 24% in fiscal 2022. Capital expenditures are still predicted to be $7.2 billion in fiscal 2022, indicating a rise from $5.88 billion incurred in fiscal 2021.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -13.69% due to these changes.
Currently, FedEx has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise FedEx has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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