How Did FedEx Perform in Fiscal 3Q16?

On March 16, FedEx (FDX) declared its third quarter 2016 results of operations. The company reported adjusted EPS (earning per share) of $2.51 per share in 3Q16, whereas the Wall Street analysts estimated adjusted EPS of $2.33 per share. The company beat the market expectations and surprised Wall Street by 7.4%. Investors should note that even its 3Q16 adjusted EPS were 24% higher than the 3Q15 adjusted EPS of $2.03 per share.

In the third quarter of 2016, FDX reported revenues of $12.7 billion, up by 2.8% from analysts’ expectation of $12.3 billion. The impressive point is that the company registered year-over-year growth of 8% in 3Q16 revenues compared with 2015. Even its EBITDA (earnings before interest, tax, depreciation, and amortization) went up to $1.82 billion compared to analysts’ estimate of $1.78 billion in 3Q16.

Much of the growth in the financials was attributed to a service ramp-up due to better-than-expected shipping demand and growth in e-commerce.

In 3Q16, FDX’s FedEx Ground segment put on a spectacular show. It reported an impressive 30% rise in the quarterly revenues at $4.4 billion, up from $3.4 billion in 3Q15. However, the segmental operating income went slightly down to $557.0 million in 3Q16 compared with the same period in 2015. The FedEx Express segment reported revenues of $6.5 billion, which was 1% down from the 3Q15’s $6.6 billion. This was mainly due to unfavorable currency exchange rates that negatively outweighed improved yield and a slight rise in US domestic volumes. The FedEx Freight segment posted a 1% rise in revenues in 3Q16, which was attributed primarily to the less-than-truckload average shipments.

Out of a total 28 analysts covering FedEx, 16 analysts are advising a “buy” for the company. The remaining 12 analysts are recommending a “hold.”

FedEx is a major global logistics company. As many as 72 ETFs have FDX in their portfolio holdings. This company is the largest holding with a 12.5% weight in the iShares Transportation Average ETF (IYT). Other major logistics companies included in this ETF are United Parcel Service (UPS), J. B. Hunt Transport (JBHT), and Kansas City Southern (KSU) with 8.3%, 6.8%, and 6.3% weights, respectively.

The past year was a difficult year for the transportation and logistics industry, which we’ll discuss in the next part of this series.