Shares of FedEx (FDX) have risen 46% year to date, besting the 16% rise in the S&P 500 index. Despite falling some 5% over the past thirty days, the stock has been one of the better performers in the Dow Jones transportation Average.
Currently trading at $254, the stock has added more than $20 since its last earnings results. Even more impressive, the shares have gained 24% over the past year, more than doubling the S&P 500 index. But is it finally time to take profits and move on? That’s one of the key questions investors are hoping to get an answer for when the global transportation giant reports first quarter fiscal 2024 earnings results after the closing bell Wednesday.
As well as the stock has performed, the company still has a lot to prove in terms of execution. There have been some glaring vulnerabilities in its core operations, particularly in package volumes. In its last quarterly results, FedEx's Express segment, which accounts for roughly half of the company's revenue, missed analysts's quarterly revenue estimates by approximately $350 million, and reduced shipment volumes was largely blamed for the shortfall.
The weakness in the Express segment was offset by the Ground segment, which saw an uptick in revenue per package, though it too suffered weak volumes. FDX management has figured ways to offset the volume weakness by improved yields and reduced expenses, but investors would much rather have volumes trend upward. On Wednesday the company will look to preserve investor confidence as it relates to profitability and volume improvements among the company’s various business segments.
In the three months that ended August, analysts expect the Memphis, Tenn.-based company to earn $3.73 per share on revenue of $21.8 billion. This compares to the year-ago quarter when earnings came to $3.44 per share on revenue of $23.58 billion. For the full year, ending May, earnings are projected to rise 16% year over year to $17.45 per share, up from $14.96 a year ago, while full-year revenue of $89.89 billion would decline 0.3% year over year.
The quarterly and full-year revenue projections don’t inspire the level of confidence investors would like. But its management continues to make moves to boost the company’s fundamentals in anticipation of improved economic conditions. One recent example being the various changes FedEx is implementing in its shipping rates and fees. Last week the company announced that the average rate in the Express segment will rise by 5.9%.
This change will take effect January 1, 2024, across its U.S. domestic, export, and import services. At the same time, the Ground and Home Delivery segment will also see a comparable rate hike of 5.9%. Last but not least, the FedEx Freight shipping rates within the U.S. will undergo an average increase ranging from 5.9% to 6.9%. On top of these rate changes, FedEx has also adjusted its demand surcharges and associated fees which will increase where there will be $6.95 handling surcharge per package effective October 2.
Its management hopes the rate increases, combined with various cost cuts, will help boost profitability amidst ongoing inflationary pressures. In the fourth quarter the company reported revenue of $21.9 billion, missing estimates of $22.66 billion. The Express segment revenue came in at $10.41 billion, against $10.76 billion consensus. While Q4 operating income of $1.77 billion beat consensus of $1.69 billion, it marked a 20% year over year decline.
It remains to be seen how the market responds to the company’s rate increases. But it’s going to require several quarters of strong operating metrics, particularly the Ground and Express units, to regain investors’ confidence.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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