FedEx to Report Q1 Earnings: What’s the Outlook for FDX Stock?

FedEx Corporation (NYSE:FDX) is set to release its fiscal first-quarter results after the closing bell on Sept. 17.

Message to FedEx Stock Investors: Don’t Worry About Amazon

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In the last reported quarter, the company ‘s earnings beat analysts’ average estimate by 4.2%. However, the top line lagged the Zacks Consensus Estimate. While earnings declined 15.2% year-over-year, revenues inched up 2.8%. Results were affected by a dismal performance of the company’s major revenue generating segment, FedEx Express, and higher costs at the FedEx Ground unit.

It’s important to note that FDX has a disappointing earnings history, having missed the Zacks Consensus Estimate in three of the last four quarters.

The outlook of the company’s Q1 results looks subdued. with the Zacks Consensus Estimate for earnings in the period being revised downward by 12.6% in the last 90 days.

The Price and EPS Surprise of FDX


FedEx Corporation Price and EPS Surprise

FedEx Corporation price-eps-surprise | FedEx Corporation Quote


Factors Likely at Play

The ongoing U.S.-China trade tensions have been taking a massive toll on the company’s performance, squeezing profits from its major revenue generating segment, FedEx Express. Apart from trade uncertainty and other macroeconomic weakness, sluggish industrial production likely hampered FedEx Express’ results in the soon-to-be-reported quarter. The Zacks Consensus Estimate for Q1 revenues  at the FedEx Express unit stands at $8,868 million, indicating a sharp fall from the year-ago reported figure of $9,222 million.

Additionally, the company’s margin could be pressured after its contract with Amazon (NASDAQ:AMZN) (for providing the company with domestic express delivery services) ceased on Jun 30. According to FDX spokeswoman Katie Wassmer, FDX generated a little less than 1.3% of its total revenues from its contract with Amazon. Although that’s fairly insignificant, some sort of margin weakness can’t be ruled out.

Moreover, with FDX investing heavily in upgrading the facilities of  its key divisions, its capital expenses are on the rise. Further, integration expenses related to TNT Express, which it bought in 2016, are pushing up its costs. These high costs might have limited the company’s bottom-line growth in Q1.

However, the robust growth of e-commerce is a major catalyst for FDX and should lift its Q1 results. Owing to this tailwind, the company’s Ground and Freight segments are anticipated to have done very well. Notably, the Zacks Consensus Estimate for revenues in Q1 at the FedEx Ground unit is $5,133 million, implying an increase from $4,799 million reported in the same quarter a year earlier. The average top-line estimate for the Freight unit stands at $1,995 million, indicating an increase from the $1,959 million reported in the year-ago quarter.

Earnings Whispers

Our proven model does not conclusively show that FDX is likely to beat estimates in Q1. Here’s why:

FDX does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — for increasing the odds of a positive surprise. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially those with a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: FedEx has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are  $3.2 per share.

Zacks Rank: FDX carries a Zacks Rank of 3, which increases the predictive power of ESP. However, the company’s 0.00% ESP in the combination complicates the surprise prediction.

Stocks to Consider

Investors interested in the broader Transportation sector may consider the following stocks with the perfect mix of elements to beat on earnings in the upcoming releases:

Canadian National Railway (NYSE: CNI) has an Earnings ESP of +1.56% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hawaiian Holdings. (NASDAQ:HA) has an Earnings ESP of +4.98% and is Zacks #3 Ranked.

Spirit Airlines, Inc. (NYSE: SAVE) is also a #3 Ranked company and has an Earnings ESP of +0.09%.

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