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FedEx (FDX) to Report Q1 Earnings: What's in the Offing?

Zacks Equity Research

FedEx Corporation FDX is set to release first-quarter fiscal 2020 (ended Aug 31, 2019) results, after the closing bell on Sep 17.

In the last reported quarter, the company delivered a positive earnings surprise of 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 is to be noted that the company has a disappointing earnings history, having missed the Zacks Consensus Estimate in three of the trailing four quarters.

The scenario pertaining to the company’s first-quarter fiscal 2020 also looks subdued with the Zacks Consensus Estimate for earnings in the period being revised downward by 12.6% in the last 90 days.

FedEx Corporation Price and EPS Surprise

 

FedEx Corporation Price and EPS Surprise

FedEx Corporation price-eps-surprise | FedEx Corporation Quote


Factors Likely at Play

The ongoing US-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 is likely to hamper FedEx Express segment’s results in the soon-to-be-reported quarter. Evidently, the Zacks Consensus Estimate for revenues in the fiscal first quarter 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 might witness some softness in margin with its Amazon contract (for providing the company with domestic express delivery services) having ceased on Jun 30. According to company spokeswoman Katie Wassmer, FedEx generated a little less than 1.3% of the total revenues from its contract with Amazon. Albeit insignificant, some sort of margin weakness can’t be ruled out.

Moreover, with FedEx investing heavily in facilities’ upgrade at its key divisions, capital expenses are on the rise. Further, integration expenses related to TNT Express are pushing up costs. These high costs might limit the company’s bottom-line growth in the quarter to-be-reported.

However, robust growth in e-commerce is a major catalyst for FedEx and should buoy results in the first quarter of fiscal 2020. Owing to this tailwind, the company’s Ground and Freight segments are anticipated to put up an impressive show. Notably, the Zacks Consensus Estimate for revenues in the fiscal first quarter at the FedEx Ground unit is pegged at $5,133 million, implying an increase from $4,799 million reported in the prior-year quarter. The same for the Freight unit stands at $1,995 million, indicating a rise from $1,959 million reported in the first quarter of fiscal 2019.

Earnings Whispers

Our proven model does not conclusively show that FedEx is likely to beat estimates in first-quarter fiscal 2020. Here's why:

FedEx 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 pegged at $3.2 per share.

Zacks Rank: FedEx 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 Company 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, Inc. HA has an Earnings ESP of +4.98% and is Zacks #3 Ranked.

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

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