Fedex stock: Will earnings report help or hurt?
Fedex will report its quarterly earnings Tuesday, and analysts expect challenges the Memphis logistics giant faced last quarter to remain at large.
Fedex blamed slowing global economies for Fedex Express' disappointing international results in December, downgrading its 2019 fiscal year forecast in anticipation of continued deceleration abroad.
Fedex’s stock dropped sharply after those results, at one point hitting a 52week low of $150.94. The stock has slowly climbed since and was trading at $180.95 Monday afternoon.
But analysts don't see much hope for a short-term bounce back from Fedex Express, which would be troubling for its third-quarter results.
“Europe continues to show signs of weakness ahead of Brexit, which will likely weigh on the international segment in 3QFY19,” Helane Becker, an analyst at financial services firm Cowen, said in a note, adding that “International Express is likely to remain weak.”
Fedex Express revenues are expected to be nearly $9.5 billion, down from $9.6 billion in the previous quarter, according to consensus estimates from investment research firm Zacks.
Analysts: Don’t expect Fedex to beat earnings forecast
Fedex earnings per share forecasts for the quarter are $3.14, per financial services firm Stephens, which would be down from $3.72 in the year-before quarter.
The company could come short of that estimate due to continued global economic weakness and “unexpected” management turnover making the integration of acquired European courier TNT Express trickier, Jack Atkins, an analyst at Stephens, said in a note. Stephens’ earnings per share forecast is $2.89 for the quarter.
“While a potential 3Q19 miss will add to the current negative sentiment around the stock, we believe there could be some potential positives announced with results, namely additional cost reductions and reduced FY20 (capital expenditures),” he said.
Fedex introduced cost-savings measures like employee buyouts in response to last quarter’s challenges, and Atkins expects more cost cuts to be announced.
Raymond James analyst Patrick Tyler Brown estimates earnings per share will land at $2.99 for the quarter due mainly to “lower international export volumes.”
Still, the TNT acquisition will help long-term growth, and Fedex Ground and Freight margins should continue to ramp up, aiding Fedex well beyond the current quarter, Brown said. Fedex Ground revenues are expected to near $5.4 billion, topping last quarter’s $5.14 billion, per Zacks, citing “robust e-commerce growth.”
“While we appreciate that the specter of slowing economic growth in Europe and Asia could drive volume headwinds over coming quarters, we continue to believe that Fedex garners a strong and highly idiosyncratic long-term growth profile in an evolving parcel arena,” Brown said in a note.
Atkins also appears optimistic about the company beyond this fiscal year, saying Fedex has “significant profitability and earnings growth” potential long term as TNT jells further with the company.
Executive changes among recent developments
New developments have come into play since Fedex’s last earnings call, including a string of management shakeups leading to a new No. 2 behind CEO Fred Smith and more chatter about Amazon encroaching on Fedex and UPS’ delivery territory.
Fedex in February announced President and COO David Bronczek’s retirement, which it called "a personal decision," not long after his appointment to the company's board of directors.
Raj Subramaniam, who began his gig as CEO of Fedex Express in January, replaced Bronczek. Don Colleran gave Subramaniam some relief by taking over as Express CEO.
“The sudden retirement of David Bronczek was surprising,” Becker said. “However, we checked the prior eight quarterly conference calls and Raj had spoken before David in 75% of these calls. As such, we believe he has been groomed to be an effective COO and is a natural fit following David's tenure with Fedex.”
How much of a threat Amazon is to Fedex and other couriers remains a hot topic among industry experts and has been brought up by analysts in past earnings calls.
Analysts at one investment firm even floated the idea of Amazon buying Fedex rather than trying to build up to Fedex’s scale.
Fedex has repeatedly downplayed Amazon as a threat, despite naming the company in recent noncompete agreements. Fedex said in January that revenue attributable to Amazon was less than 1.3 percent in 2018.
Fedex will announce its third-quarter earnings for the 2019 fiscal year at 3:15 p.m. CT Tuesday before holding its earnings call at 4:30 p.m. CT.
Max Garland covers Fedex, logistics and health care for The Commercial Appeal. Reach him at max.garland@commercialappeal.com or 901-529-2651 and on Twitter @Maxgarlandtypes.