It has been about a month since the last earnings report for FedEx (FDX). Shares have added about 10.4% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Earnings Beat at FedEx in Q2
FedEx’s second-quarter fiscal 2023 (ended Nov 30, 2022) earnings (excluding 11 cents from non-recurring items) of $3.18 per share beat the Zacks Consensus Estimate of $2.77 but declined 34.2% year over year. The downfall was due to persistent demand weakness, especially at FedEx Express.
Quarterly revenues of $22,814 million fell short of the Zacks Consensus Estimate of $23,662.9 million and decreased 2.8% from the year-ago fiscal quarter’s reported figure. The reported figure came below the guided range of $23.5-$24 billion.
The top line was favorably impacted by yield improvement and higher fuel surcharges, partially offset by global volume softness, at each of FDX’s transportation segments.
Operating expenses (reported basis) decreased 1% to $21.6 billion. Expenses pertaining to salaries and employee benefits inched down 4% in the fiscal second quarter. Purchased transportation expenses decreased 9%, while fuel expenses rose 39%. Other operating expenses climbed 4%, while rentals expense increased 2%.
Operating income (on a reported basis) decreased 26.3% from the year-ago fiscal quarter’s reported number to $1.18 billion. Operating income (on an adjusted basis) declined 27.9% from the year-ago fiscal quarter’s reading to $1.21 billion for the reported quarter. Operating margin (adjusted) declined to 5.3% from 7.1% in the year-ago fiscal period.
FedEx Express segment revenues fell 6% year over year to $10,864 million, owing to the decreased global volume and unfavorable exchange rates, partially offset by global package yield improvement, including higher fuel surcharges. Segment operating income fell 64% year over year, owing to lower global volumes, partially offset by an 8% package yield increase.
FedEx Ground segment revenues increased 2% year over year to $8,393 million, owing to yield improvement, including higher fuel surcharges, partially offset by lower volumes. Operating income increased 24% year over year, owing to 13% yield increase and cost reduction actions, partially offset by increased purchased transportation rates, lower package volume.
FedEx Freight revenues climbed 8% from the year-ago fiscal quarter’s reported figure to $2,454 million, driven by higher revenues per shipment. The segment’s operating income grew 32% year over year due to 18% yield increase, partially offset by higher salaries and employee benefits and decreased shipments. Average daily shipments declined 9%, while revenue per shipment increased 18%.
Capital expenditures for the quarter came in at $ 3,142 million.
FedEx exited second-quarter fiscal 2023 with cash and cash equivalents of $4.65 billion compared with $6.85 billion recorded as of Aug 31, 2022. Long-term debt (less current portion) was $20.08 billion compared with $19.91 billion recorded at the end of the previous quarter.
Fiscal 2023 Outlook
FDX expects earnings per share for 2023 (excluding costs related to business optimization initiatives and business realignment activities) between $13.00 and $14.00. FDX now anticipates capital spending of $5.9 billion (prior view: $6.3 billion) in fiscal 2023.
FDX has identified around $1 billion in cost savings beyond its September expectation and now anticipates generating cost savings of nearly $3.7 billion in fiscal 2023.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -12.21% due to these changes.
Currently, FedEx has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. 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 B. 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. Notably, FedEx has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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