When will FedEx (FDX) stock finally reach its bottom? That question, among others, will be answered when the company reports fourth quarter fiscal 2022 earnings results after the closing bell Thursday.
FedEx management, over the past few quarters, have been more open about the challenges the company is facing regarding demand, labor and supply chain issues. They’ve provided more granular details with the trends they are seeing. However, with the stock currently down 20% over the past year, compared to 13% decline for rival UPS (UPS). Last month FedEx stock, which has underperformed the market and its peers over the past five years, formed what traders refer to as a “double bottom” which often suggests that the market has drawn a near-term line for how low the stock should go relative to its value.
The stock has nonetheless been one of the better performers in the transportation sector and the overall market. Currently down 13% year to date, FedEx has bested the 23% decline in the S&P 500 index. Notably, this is despite the fact that the company continues to struggle with labor issues and costs at FedEx Ground due to supply-chain disruptions. However, the company has taken aggressive steps to address these challenges. The question is whether its efforts will yield meaningful improvements to the bottom line.
On Thursday investors will want to hear that same level of optimism, namely about profitability improvements among FedEx’s various segments. Not only must FedEx beat on the top and bottom lines, it must also guide confidently, suggesting that any improvement can be sustainable.
In the three months that ended May, analysts expect the Memphis, Tenn.-based company to earn $6.88 per share on revenue of $24.47 billion. This compares to the year-ago quarter when earnings came to $5.01 per share on revenue of $22.60 billion. For the full year, earnings are projected to rise 10% year over year to $20.59 per share, up from $18.17 a year ago, while full-year revenue of $93.49 billion would rise 11.4% year over year.
The fact that both full-year revenue and profits are expected to rise amid struggles to supply chains, rising cost and labor shortage is a testament to the ability of the management team. Those headwinds, including increased costs related to network expansion, are expected to affected profits for the quarter. The company can offset these costs if it benefited from a combination of healthy demand and increase online shopping.
Assuming the latter remains strong, FedEx is poised to deliver revenue beat. Likewise, the company’s Ground unit, which accounts for 35% of total revenue, and handles online deliveries for many retailers, will have surpassed estimates. Historically accounting for 50% to 85% of the company’s total operating income, growth in the Ground segment has moderated in recent quarters. In Q3, the company beat on the top, but missed on bottom line.
Q2 revenues grew 10% to $23.64 billion, ahead of estimates by $307 million, while adjusted EPS of $4.59 missed by 6 cents. The company blamed the bottom line miss to higher transportation costs and labor costs. Benefiting from higher revenue per shipment, Q2 operating income rose 38% to $1.46 billion. On the positive side, operating income in FedEx Freight nearly tripled, thanks to continued focus on revenue quality and profitable growth, offsetting decline in FedEx Ground.
Often seen as a bellwether for the overall health of the economy, FedEx’s revenue and profit forecast on Thursday will be closely-watched, mostly for any indication of inflationary pressures.
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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