FedEx Corporation (FDX) stock fell off the back of the truck on Wednesday after the shipping giant whiffed on earnings and revenue expectations. FDX stock was down as much as 5% in early trading following the news.
Wall Street had high hopes for FedEx shares, which, before today, had posted 21% gains in 2014, easily trumping the year-to-date gains of the S&P 500 by nearly 15 percentage points.
FDX stock gains have also far outpaced those of its rival, United Parcel Service, Inc. (UPS), which through yesterday’s close had only added 4.5% to its stock price this year.
Fairly or unfairly, UPS stock was also getting slightly dinged this morning, falling more than 2% as the markets worried the FedEx miss could signal a softness in the industry.
What Does the FedEx Miss Mean for Holiday Sales?
In the period ending Nov. 30, FDX revenue rose 5% from the year-ago period to $11.9 billion, and earnings per share jumped 36%, rising from $1.57 per share to $2.14 per share. But Wall Street expected more from the transportation and logistics company, with analysts calling for EPS of $2.22 and revenue of nearly $12 billion.
On the surface, FedEx’s miss is a little disconcerting, considering that FDX stock has a number of significant economic tailwinds ostensibly helping to lift it higher:
- Falling oil prices clearly benefit companies like FedEx and UPS, which enjoy bigger margins when their fuel costs decline. FedEx is the world’s largest air shipper, so oil’s unceremonious decline helps FDX immensely. Cheaper gas also means more money in the pocket of the American consumer for the holiday season.
- A strong U.S. economy — the November jobs report just crushed expectations and industrial production last month also topped forecasts — put FDX in a prime position as it refocuses on U.S. ground shipping.
- FedEx’s string of e-commerce acquisitions take aim at Amazon.com, Inc. (AMZN) and hones its focus on the rapidly growing area of online sales.
So why and how did FDX stock miss the mark, given this long list of favorable conditions? It was actually aircraft maintenance expenses that were mostly responsible for the EPS miss, so nothing too sinister was going on behind the scenes that investors should be overly worried about.
In fact, investing in aircraft maintenance isn’t the worst way to miss on earnings, considering it could save the company millions in the years ahead. With package volume up by 5% and operating margins jumping from 7.3% to 8.5%, last quarter wasn’t nearly as bad as the stock market’s making it out to be.
I can understand some jitters about the FDX revenue miss, but I wouldn’t read into it too deeply. The three months ending Nov. 30, after all, include only the very beginning of the holiday retail rush, so the most pivotal time of FedEx’s fiscal year is happening right now.
With that in mind, today’s pullback looks a lot more like an opportunity than a crisis.
John Divine is assistant editor of InvestorPlace.com. As of this writing, he held no position in any of the aforementioned stocks. You can follow him on Twitter at @divinebizkid.
