FedEx (FDX) Misses on Q1 Earnings, Raises 2019 EPS View

FedEx CorporationFDX reported mixed results in the first quarter of fiscal 2019 (ended Aug 31, 2018). The company's earnings (excluding 36 cents from non-recurring items) of $3.46 per share missed the Zacks Consensus Estimate of $3.78. However, the bottom line soared 37.9% on a year-over-year basis. The results were aided by growth across all its transportation segments.

The earnings miss displeased investors. Consequently, shares of the company declined 2.8% in after-hours trading on Sep 17. Investors are also possibly pessimistic about escalating trade-war tensions between United States and China. The company's CEO Fred Smith claimed that tariffs hurt economic growth. Per Executive Vice President Rajesh Subramaniam, economic activity in China seems to be modest, with talks of tariffs on another $200 billion worth of Chinese imports.

Quarterly revenues increased 11.5% year over year to $17,052 million, beating the Zacks Consensus Estimate of $16,879.5 million. Growth was witnessed across all major divisions of the company. Operating income (on an adjusted basis) climbed 9.2% year over year to $1.19 billion in the reported quarter. Meanwhile, operating margin declined to 7% from 7.1% recorded in first-quarter fiscal 2018.

F edEx Corporation Price, Consensus and EPS Surprise

FedEx Corporation Price, Consensus and EPS Surprise | FedEx Corporation Quote

Segmental Performance

Quarterly revenues at FedEx Express (including TNT Express) improved 9.8% to $9.22 billion on the back of higher freight pounds, U.S. domestic package volume and yield growth, increase in fuel surcharges as well as other factors. Operating income came in at $367 million, up 14.7% year over year and operating margin increased to 4% from 3.8% in the year-ago quarter.

FedEx Ground revenues increased 13% year over year to $4.8 billion in the period under consideration. A 7% rise in average daily package volume and 6% increase in yields aided the segmental performance. Operating income came in at $667 million, up 10% while operating margin contracted 40 basis points (bps) to 13.9%.

FedEx Freight revenues jumped 18% year over year to $1.96 billion. Segmental revenues were benefited by a quarterly increase in revenue per shipment and average daily shipments of 8% and 9%, respectively. Also, the segment's operating income climbed 7% to $176 million. However, operating margin contracted 90 bps to 9% in the quarter.

Bullish Fiscal 2019 Outlook

The company raised its earnings per share guidance for fiscal 2019. It now anticipates the same in the range of $17.20-$17.80, excluding pension adjustments and TNT Express integration expenses. Prior view was in the band of $17-$17.60. The Zacks Consensus Estimate for fiscal 2019 earnings per share stands at $17.31.

The company continues to expect 9% increase in revenues and operating margin (excluding TNT Express integration expenses) is anticipated at around 8.5%. Further, the company expects effective tax rate of around 25% while capital expenses are estimated to be $5.6 billion, lower than $5.7 billion incurred in fiscal 2018.

Meanwhile, the company continues to focus on improving its operating income by $1.2-$1.5 billion at the FedEx Express segment in fiscal 2020 from the fiscal 2017 level.

Zacks Rank & Key Picks

FedEx currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are SkyWest, Inc. SKYW , Trinity Industries, Inc. TRN and Old Dominion Freight Line, Inc. ODFL , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Shares of SkyWest, Trinity and Old Dominion have rallied more than 52%, 20% and 63%, respectively, over a year.

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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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