A month has gone by since the last earnings report for FedEx (FDX). Shares have lost about 13.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is FedEx due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
FedEx Beats on Earnings in Q2
The company’s earnings (excluding 28 cents from non-recurring items) of $4.83 per share handsomely surpassed the Zacks Consensus Estimate of $2.59. Moreover, the bottom line surged approximately 60% year over year, driven by increased volumes at FedEx International Priority and U.S. domestic residential-package services, as well as yield improvement at FedEx Ground and FedEx Freight. Moreover, benefits from an additional operating day contributed approximately $130 million to first-quarter fiscal 2021 performance.
Quarterly revenues of $19,321 million outperformed the Zacks Consensus Estimate of $17,459.4 million and increased 13.3% year over year, primarily owing to increased demand for e-commerce as coronavirus restricts people to their homes. Operating income (on an adjusted basis) soared 56.2% year over year to $1.64 billion in the reported quarter due to international export and U.S. domestic-package volume growth at FedEx Express, higher residential volumes at FedEx Ground andyield improvement at FedEx Ground and FedEx Freight. Operating margin (adjusted) also improved to 8.5% from 6.1% in the year-ago period.
Quarterly revenues at FedEx Express (including TNT Express) ascended 8% to $9,647 million due to international export and U.S. domestic-package volume growth. Segmental operating income (adjusted) increased to $747 million from $342 million in the year-ago period. Also, segmental operating margin (on an adjusted basis) improved to 7.7% from 3.8% in first-quarter fiscal 2020.
FedEx Ground revenues surged 36% year over year to $7,040 million in the period under consideration owing to residential-delivery volume growth. Operating income came in at $834 million, augmenting 30% year over year. However, segmental operating margin dipped to 11.8% from 12.4% in the prior-year quarter.
FedEx Freight revenues declined 4% year over year to $1,826 million due to fall in average daily shipments. However, the segment’s operating income soared 41% to $274 million, thanks to focus on revenue qualitative initiatives and cost-reduction measures. Moreover, operating margin increased to 15% from 10.2% in the year-ago quarter.
FedEx anticipates capital expenditures of $5.1 billion in fiscal 2021, compared with $4.9 billion expected previously. The anticipated increase in capital spending is due to initiatives to increase capacity in response to growing volumes.
The company is expected to incur TNT Express-integration expenses of approximately $1.7 billion through fiscal 2022.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 14.06% due to these changes.
Currently, FedEx has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise FedEx has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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