FedEx (FDX) Beats Q1 Earnings, Sales Estimates; Stock Up

FedEx Corporation 's FDX first-quarter fiscal 2017 (ended Aug 31, 2016) earnings per share (on an adjusted basis) of $2.90 beat the Zacks Consensus Estimate of $2.79. Higher-than-expected revenues drove the earnings beat. The bottom line also increased 19.8% year over year.

Source: FindTheCompany | Graphiq

Quarterly revenues climbed 19.4% year over year to $14.7 billion and also surpassed the Zacks Consensus Estimate of $14.4 billion. Strong sales at the company's express, ground and freight divisions boosted the top line in the fiscal first quarter. Notably, this is the first full quarter after the acquisition of TNT Express, which was completed this May. Inclusion of the results of TNT Express also aided the top line. Investors were naturally pleased with the company's quarterly performance, which resulted in its shares gaining in after-market trading on Sep 20.

Operating income (on an adjusted basis) improved 19.3% year over year to $1.36 billion in the quarter. Higher base yields at the FedEx Express and FedEx Ground divisions as well as volume expansion at the FedEx Ground unit boosted operating results. Operating margin was flat at 9.3% during the quarter. FedEx repurchased 1.4 million shares in the fiscal first quarter.

The company expects to hire more than 50,000 seasonal workers to meet the upcoming holiday season rush.

Segmental Performance

Quarterly revenues at FedEx Express inched up to $6.66 billion. Operating income surged almost 19% year over year to $646 million in the reported quarter. As a result, operating margin was 9.7%, up 140 basis points (bps) from the year-ago quarter. Operating results were positively impacted by higher base yields and the cost efficiency-related efforts.

Revenues at the TNT Express segment came in at $1.8 billion during the quarter. Operating margin, on an adjusted basis, stood at 1.9%.

FedEx Ground revenues increased 12% year over year to $4.29 billion in the fiscal first quarter. Volume expansion and higher ground revenue per package aided the segmental performance during the quarter. Operating income came in at $610 million, up 14%. Operating margin improved 20 bps to 14.2%. Higher volumes, increased yields and lower self-insurance costs aided segmental operating results.

FedEx Freight revenues grew 4% year over year to $1.66 billion. Less-than-truckload average daily shipments improved 8%, thereby offsetting the negative impact of lower fuel surcharges and weight per shipment. The segment's operating income inched up 2% to $135 million. Operating margin was 8.1%, down 10 bps.

FEDEX CORP Price, Consensus and EPS Surprise

FEDEX CORP Price, Consensus and EPS Surprise | FEDEX CORP Quote

Service Rates for 2017 Hiked

Earlier this month, United Parcel Service UPS hiked its service rates. FedEx too jumped on the bandwagon soon after and announced its decision to raise its service rates, effective Jan 2, 2017. The company announced that shipping rates at the FedEx Express unit will increase by an average of 3.9%. Shipping rates at the FedEx Ground, FedEx Home Delivery and FedEx Freight units will be hiked by an average of 4.9%. The FedEx Express and FedEx Ground U.S. domestic dimensional weight divisor will be changed from 166 to 139. Moreover, FedEx Express and FedEx Ground fuel surcharges will be adjusted on a weekly basis from Feb 6, 2017 as opposed to the monthly adjustment system followed currently.

Fiscal 2017 Guidance

Including the impact of the acquisition of TNT Express, the company expects fiscal 2017 earnings in the band of $10.85-$11.35 per share, on an adjusted basis. The guidance assumes moderate economic growth. The Zacks Consensus Estimate for fiscal 2017 currently stands at $11.89 per share.

Capital expenses, including TNT Express buyout, are projected at $5.6 billion. The company mentioned that the TNT Express integration process is on track and the procedure will take four years to be fully completed. Annual synergies are expected to be around $750 million.

The company expects earnings in the band of $11.85-$12.35 per share, excluding TNT Express-related integration and Outlook restructuring program expenses, and TNT Express intangible asset amortization costs. At the fourth-quarter fiscal 2016 conference call, FedEx had predicted earnings per share for fiscal 2017 in the band of $11.75 to $12.25 (excluding TNT Express acquisition).

Zacks Rank & Key Picks

FedEx currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the broader transportation space are Air Transport Services Group ATSG and Copa Holdings SA CPA . Copa Holdings sports a Zacks Rank #1 (Strong Buy) while Air Transport Services carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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