FedEx (FDX) Misses Q2 Earnings Estimates, Shares Decline

FedEx Corporation 's FDX second-quarter fiscal 2017 (ended Nov 30, 2016) earnings per share (on an adjusted basis) of $2.80 fell short of the Zacks Consensus Estimate of $2.91. The bottom line was hurt by higher costs. Earnings, however, climbed 8.53% on a year-over-year basis.

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Although shares of FedEx have outperformed the Zacks categorized Transportation-Air Freight industry on a year-to-date basis, the earnings miss resulted in the stock declining 3.34% in after hours trading on Dec 20. On a year-to-date basis, shares of FedEx have gained 33.39% while the industry advanced only 25.39%.

Quarterly revenues climbed 19.9% year over year to $14,931 million, edging past the Zacks Consensus Estimate of $14,884 million. Strong sales at the company's ground and freight divisions boosted the top line in the fiscal second quarter. Notably, this is the second 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.

Operating income (on an adjusted basis) improved 2.5% year over year to $1.23 billion in the quarter. Higher base rates and the cost savings at the FedEx Express division as well as the inclusion of TNT Express results boosted operating income. Operating margin declined 130 basis points (to 8.3% during the quarter.

The company hired more than 50,000 seasonal workers to meet the ongoing holiday season rush. The full reflection of the holiday season performance will be obtained in the company's third-quarter results. FedEx's rival United Parcel Service UPS also strives to perform well in this period.

Segmental Performance

Quarterly revenues at FedEx Express inched up 2% to $6.74 billion driven by increased base rates and higher package volume. Operating income surged 5% year over year to $654 million in the reported quarter. As a result, operating margin improved to 9.7%. Operating results were positively impacted by higher base yields and the cost efficiency-related efforts.

Revenues at the TNT Express segment came in at $1.9 billion during the quarter. Operating margin, on an adjusted basis, stood at 4.7%.

FedEx Ground revenues increased 9% year over year to $4.42 billion in the fiscal second quarter. Volume expansion and higher yields aided the segmental performance during the quarter. Average daily volume grew 5% in the second quarter mainly due to the growth in e-commerce. Operating income came in at $456 million, down 12%. Operating margin depreciated 250 bps to 10.5%. Increased rent coupled with higher purchased transportation rates contributed to the lackluster segmental operating results.

FedEx Freight revenues grew 3% year over year to $1.6 billion. Less-than-truckload average daily shipments improved 3%, thereby offsetting the negative impact of lower weight per shipment. The segment's operating income decreased 13% to $88 million. Operating margin was 5.5%, down 100 bps.

FEDEX CORP Price, Consensus and EPS Surprise

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

Fiscal 2017 View

The company still 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. The Zacks Consensus Estimate for fiscal 2017 currently stands at $12.13 per share.

Including the impact of the acquisition of TNT Express, the company expects fiscal 2017 earnings in the band of $10.95-$11.45 per share, on an adjusted basis. The guidance assumes moderate economic growth.

Capital expenses, including TNT Express buyout, are still 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. The total expense for the integration program over the period is still expected in the range of $700 million to $800 million.

Zacks Rank & Key Picks

FedEx currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader transportation space are Hawaiian Holdings HA and Copa Holdings SA CPA . Both stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here . The Zacks Consensus Estimate for the current quarter has increased 4.2% to $1.25 per share over the last month at Copa Holdings. At Hawaiian Holdings, the measure increased 8.5% to 1.28 per share over the same time period.

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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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