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FedEx (FDX) Q4 Earnings Beat, Fiscal 2020 Outlook Dull

Zacks Equity Research

FedEx Corporation’s FDX fourth-quarter fiscal 2019 (ended May 31, 2019) adjusted earnings (excluding $12.57 from non-recurring items) of $5.01 per share beat the Zacks Consensus Estimate of $4.81. However, the bottom line declined 15.2% year over year. This downside was primarily due to a dismal performance of the company’s major revenue generating segment, FedEx Express, and higher costs at the FedEx Ground unit.

Quarterly revenues inched up 2.8% year over year to $17,807 million but lagged the Zacks Consensus Estimate of $17,811.9 million. The top line benefited from higher revenues at the Ground and Freight segments.

Operating income (on an adjusted basis) decreased 7% year over year to $1.72 billion in the reported quarter due to lower freight revenues at the FedEx Express segment, high costs and other factors. Operating margin also deteriorated to 9.6% in the fiscal fourth quarter from 10.7% a year ago.

The company repurchased 6.6 million shares for approximately $1.5 billion during fiscal 2019.

FedEx Corporation Price, Consensus and EPS Surprise

Segmental Performance

Quarterly revenues at FedEx Express (including TNT Express) slid 1% to $9.5 billion due to weakness in global trade and industrial production. Operating income came in at $766 million, down 12% year over year. Also, operating margin dipped to 8.1% from 9% in the year-ago quarter.

FedEx Ground revenues increased 11% year over year to $5.32 billion in the period under consideration. Operating income came in at $810 million, nearly flat year over year while operating margin contracted to 15.2% from 16.9% in the prior-year quarter.

FedEx Freight revenues rose 5% year over year to $1.95 billion. Segmental revenues gained from higher revenue per shipment and average daily shipments. Also, the segment’s operating income ascended 15% to $194 million. Moreover, operating margin expanded 90 basis points to 9.9% in the quarter under review.

Full-Year Results

For fiscal 2019, the company delivered adjusted earnings of $15.52 per share, surpassing the Zacks Consensus Estimate of $15.34. The bottom line also improved year over year. Meanwhile, revenues of $69.7 billion marginally missed the Zacks Consensus Estimate of $69.71 billion. However, the top line improved substantially year over year.

Bearish Fiscal 2020 Outlook

Persistent weakness in global trade and industrial production is likely to hamper FedEx’s fiscal 2020 results. To counter the challenges posed by sluggish revenues, the company is focusing on ways to minimize costs.

While the company anticipates operating income to increase at FedEx Ground and FedEx Freight segments, the same is likely to be affected at the FedEx Express segment due to macroeconomic weakness and trade-related uncertainty among other things.

Meanwhile, adjusted earnings are estimated to decline in mid-single-digit percentage point year over year during the current fiscal year. Effective tax rate (prior to the year-end MTM retirement plan accounting adjustment) is predicted in the range of 23-25%. Capital expenditures are expected to be $5.9 billion in the current fiscal year compared with $5.5 billion in fiscal 2019. This includes $350 million from TNT Express integration expenses. Total TNT Express integration expenses are projected to be approximately $1.7 billion (including $350 million expected to be incurred in fiscal 2020) through fiscal 2021.

Zacks Rank & Key Picks

FedEx carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader Transportation sector are Radiant Logistics, Inc. RLGT, Fly Leasing Limited FLY and GATX Corporation GATX. While Fly Leasing sports a Zacks Rank #1 (Strong Buy), Radiant Logistics and GATX carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Radiant Logistics, Fly Leasing and GATX have rallied more than 48%, 21% and 8%, respectively, in a year’s time.

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