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Why FedEx’s Q3 2019 Results Were Disappointing

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Below expectations

On March 19, FedEx (FDX) reported dismal results for the third quarter of fiscal 2019, wherein its top and bottom lines both fell short of analysts’ expectations. The company’s adjusted EPS of $3.03 missed analysts’ estimate of $3.11.

Moreover, on a YoY (year-over-year) basis, its EPS fell 18.5% mainly due to sluggish revenue growth, higher operating costs, and increased expenses related to the TNT Express integration.

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The delivery giant’s third-quarter YoY revenue growth of 2.9% was its lowest in the last 14 quarters. Moreover, FedEx’s quarterly revenue of $17 billion came in below Wall Street’s estimate of $17.7 billion. The company’s chair and CEO, Frederick W. Smith, said during its earnings release, “Our third quarter financial results were below our expectations and we are focused on initiatives to improve our performance.”

FedEx revealed that weakness in its Express segment had hurt its overall top line growth. The unit recorded a 1% YoY fall in revenue due to a trade slowdown in the European and Asian regions—particularly China. The delivery giant noted that the ongoing US-China trade dispute had weakened its logistics business in China.

Nonetheless, excluding the Express business, FedEx reported revenue growth across all its other operating segments. Revenues at FedEx Ground, FedEx Freight, and FedEx Services grew 9%, 8.5%, and 1.3%, respectively, during the third quarter. The contributions of FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services to FedEx’s total revenues before intersegment eliminations were 55%, 32%, 11%, and 2%, respectively.

Peers’ EPS expectations

Most of FedEx’s peers (IYT) will report their first-quarter results in April. Analysts’ first-quarter revenue expectations for UPS (UPS), XPO Logistics (XPO), and Old Dominion Freight Lines (ODFL) depict potential rises of 4%, 2.4%, and 9.1% YoY, respectively. The earnings estimates for UPS and XPO Logistics signify potential falls of 7.1% and 16.1% YoY, respectively. Old Dominion Freight Lines is expected to report EPS growth of 22.7%.

In the next article, we’ll look at FedEx’s cost-cutting initiatives to boost its profitability.

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