FedEx (FDX) stock just flipped into the black year-to-date after its latest earnings report showed that the world’s largest air-delivery company doesn’t need a pick up in the global economy to crush Wall Street expectations.
For years now, FedEx and FDX stock have been contending with sluggish global economic growth and a resulting decline in demand for higher-priced (and higher-margin) air shipping, especially from Asia.
As the world’s largest air-delivery company by volume, FDX is uniquely positioned to be hurt by companies choosing to take the slow boat from China. Indeed, FedEx was forced to issue a number of profit warnings when revenue and margins slipped on waning demand, putting a predictable drag on FedEx stock.
But FedEx responded with a wide-ranging cost-cutting program and price hikes, and as the latest quarter showed, the strategy is working.
Last quarter’s miserable winter weather may have crushed results, but the hit proved to be temporary. For the most recent period, FDX said earnings rose to $730 million ($2.46 per share), up from $303 million (95 cents per share) in the year-earlier period. Analysts were looking for earnings of $2.36 a share, according to analysts surveyed by Thomson Reuters.
True, FedEx benefited from easy comparisons — last year’s period included $1.18 per share in charges related to cost reductions — but the operational improvement can’t be denied. Thanks to strength in its ground-shipping business, FedEx revenue rose 3.5% to $11.8 billion, which also beat Wall Street forecasts.
The rosy results boosted FDX by more than 5% by midday Wednesday, putting FedEx at a 2% gain year-to-date.
A week ago, FedEx stock was off more than 3% on the year.
FedEx Stock Set to Deliver
It’s pretty clear that FedEx stock bottomed back in February and is back on track for solid gains and perhaps even outperformance. As weak as the global economy has been, the market has been pretty thrilled with how FDX management responded to the challenges. After all, FedEx stock is up 49% over the past 52 weeks, clobbering the broader market by about 30 percentage points.
That sure wasn’t due to any kind of global economic help.
As the world’s largest package and cargo shipper by air, FedEx is about as good a bellwether as they come — and by the company’s own account, global economic growth is still only moderate at best.
So FedEx responded by focusing on where there is growth to be found. E-commerce sales are fueling demand for ground shipping. That allowed FedEx — and rival United Parcel Service (UPS) — to raise prices.
Booming online sales helped the FedEx Ground segment record an 8% gain average daily volume — despite higher prices. Taken together, volume and price gains led to an 8% rise in revenue for FedEx’s ground business.
In other market-friendly news, FedEx bracketed Wall Street’s 2015 earnings forecast, issuing guidance of $8.50 to $9 a share vs. an average estimate of $8.76. Furthermore, FDX raised the dividend on FedEx stock to 20 cents a quarter from 15 cents.
The global economy may not be pulling for FedEx, but its most recent results and forecast show FedEx stock doesn’t necessarily need accelerating global growth to succeed.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.