Why FedEx Is Likely to Report Disappointing Q4 Earnings


Jun. 21 2019, Updated 2:44 p.m. ET

Fourth-quarter expectations

FedEx (FDX) is expected to report its fiscal 2019 fourth-quarter results on June 25. The delivery giant has a mixed earnings surprise history, as it has surpassed estimates five times in the trailing ten quarters and has also missed estimates five times.

In the third quarter, the company missed analysts’ earnings estimates and also marked a significant YoY decline. Wall Street is anticipating another dismal performance from FedEx for its fourth-quarter results as well. For the to-be-reported quarter, analysts are projecting adjusted EPS of $4.89, implying a YoY decline of 17.3%.

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What’s driving this pessimism?

Analysts’ pessimistic view for FedEx’s fourth-quarter earnings is due to concerns over the global trade slowdown and rising expenses. FedEx is already feeling the pinch from weakness in global trade.

During the company’s third-quarter earnings release, FedEx executive vice president and CFO, Alan B. Graf, said, “Slowing international macroeconomic conditions and weaker global trade growth trends continue, as seen in the year-over-year decline in our FedEx Express international revenue.”

FedEx had revealed during its third-quarter results that economic slowdown across the European Union and Asia, particularly China, is hurting global delivery and logistics demand. The ongoing trade war between the US and China is hampering its business in China.

Therefore, analysts project FedEx to report sluggish revenue growth in the fourth quarter. Fourth-quarter revenue is anticipated to grow 2.9% YoY to $17.8 billion. Excluding the third quarter, the company had registered high-single-digit top-line growth in the preceding six quarters.

Furthermore, analysts believe that higher costs due to delays in TNT Express’s integration and higher salaries, bonuses, and facility upgrade investments, could weigh on FedEx’s fourth-quarter bottom-line results. Additionally, the company’s earlier announcement of voluntary buyouts of US-based employees is also likely to increase its fourth-quarter pre-tax expenses.

Peers’ expectations

Most of FedEx’s peers plan to report their second-quarter 2019 results in July. The company’s arch-rival United Parcel Service (UPS) is anticipated to post a 0.5% YoY decline in second-quarter earnings. Analysts expect Old Dominion Freight Lines (ODFL) and XPO Logistics (XPO) to post YoY growth of 7.2% and 7.6%, respectively.

To gain exposure in the air freight and courier services industry, one can invest in the iShares Transportation Average ETF (IYT), which has gained 17.8%. The ETF has outperformed the returns of the Dow Jones index which is up 13.5%.


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