FedEx (FDX) Stock: Earnings Impresses, Outlook Depresses

Advertisement

FedEx Corporation (NYSE:FDX) stock lost ground in early trading on Wednesday after its fiscal third-quarter earnings release. While earnings topped expectations, revenue missed the mark and the company’s outlook also had Wall Street worrying.

FedEx (FDX) Stock: Earnings Impresses, Outlook DepressesWith FDX stock having rallied more than 23% in the last year — handily beating the returns of the S&P 500 by 13 percentage points — some investors may be concerned that today’s FedEx earnings report marks the end of a rally.

Fear not, FDX shareholders. Though the stock is down today, the fundamentals remain intact. Plus, the quarter wasn’t actually that bad.

FDX: Earnings Per Share Blowout

Earnings per share rocketed 63% higher in the third fiscal quarter, as share buybacks, more fuel-efficient air fleets, lower fuel costs and the buyout of thousands of now-former employees made for quite the earnings beat.

Analysts expected EPS of $1.87 but FDX stock over-delivered with EPS of $2.01 in the holiday quarter, which ran from December through February. Considering the miserable holiday quarter that rival United Parcel Service, Inc. (NYSE:UPS) announced in January, today’s 2% slump looks like a godsend.

We’ll get to what’s hampering FDX stock in a minute, but investors should realize that the problems with UPS stock are far more dire. UPS stock fell 10% in a single day earlier this year after management announced it had accidentally exceeded its budget by $200 million in an effort to serve the holiday rush.

But as we already know, FDX has its expenses under control. In fact, FDX may be a victim of its own success, as the market is actually punishing FedEx today for narrowing its full-year EPS forecast to between $8.80 and $8.95. Wall Street was expecting $8.97.

FDX: The Revenue ‘Problem’

Revenue was the other point of contention today, as FDX’s $11.7 billion result missed the estimate of nearly $11.8 billion.

Give me a break! Any large-cap stock with exposure to Europe and China right now is going to feel the pain of currency headwinds and a decelerating Asian economy, and FDX stock is no exception. Plus, while lower fuel costs are undoubtedly a boon to FedEx, the company also charges its customers a fuel surcharge fee, which moves up and down with energy prices.

In other words, lower fuel costs, with all else equal, directly translates to lower revenue.

Instead of punishing companies retroactively for missing unreasonable revenue estimates that don’t fully take currency headwinds into consideration, Wall Street should simply expect less from companies with international revenue streams.

The Bottom Line

FDX stock will ultimately recover from today’s earnings report. Volumes in the quarter grew across all its transportation segments, and its ground division grew revenue at a 12% clip as e-commerce continued to drive growth.

So, while FedEx shares are off modestly today in early trading, don’t worry: FDX is still a best-in-class shipping stock.

As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2015/03/fedex-fdx-stock-earnings-impresses-outlook-depresses/.

©2024 InvestorPlace Media, LLC