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FedEx Corp reported after the close Tuesday missing expectations on tax benefits and with costs and wage rises. $FDX also lowered guidance giving us insight into the slowing international global trade growth trends and threats from online retail giant $AMZN and rivals $UPS and DHL.


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FedEx had been a star of the the bull market rally this year but now appears threatened.

FedEx Corporation NYSE: FDX Reported Earnings After Close Tuesday

 $3.03 Missed $3.11 EPS AND $17.01 billion Missed $17.67 billion forecast in revenue. 

Earnings 

FedEx Earnings for the fiscal third quarter, (March 2019) FedEx saw a 64.3% fall in earnings due to the lower tax benefits from the recognition of certain tax loss carryforwards and lower statutory income tax rate missing analysts expectations. Net income fell to $739 million and earnings dropped 63.1% to $2.80 per share. Adjusted earnings decreased by 18.5% to $3.03 per share vs. $3.11 expected, according to analysts surveyed by Refinitiv. Revenue of $17.01 billion missed the $17.67 billion expected, according to analysts surveyed by Refinitiv.

This year’s quarterly results have been adjusted to exclude TNT Express integration expenses and business realignment costs. Last year $FDX accelerated wage increases for certain hourly employees due to the enactment of GOP tax cuts. Combined, these items hurt results.

FedEx Corporation NYSE: FDX

Market Reaction After hours $171.25 −10.16 (-5.60%)

“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,” says Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer.

Segments

FedEx Express segment.

  • Total package revenue remained flat with last year as increases in the US package revenue was offset by declines in the international export package and international domestic revenues.
  • FedEx continues to make progress on the integration of FedEx Express and TNT Express operations. In February, FedEx Express began to integrate its intra-European shipments into the TNT Express European road network. With this development, FedEx Express customers in Europe will on average see at least one business day of transit time improvement on 40% of all European lanes, with the full implementation expected in June.
  • Integration expenses are expected to exceed $1.5 billion cumulatively through fiscal 2021 and additional costs may be incurred related to investments that will further transform and optimize the FedEx Express business. The forecast for fiscal 2019 integration expenses is down slightly to $435 million. For the third quarter, revenue from FedEx Express declined by 1% year-over-year.
  • Revenue from the Freight segment increased by 8% and that from FedEx Services segment rose by 1%.

FedEx Ground segment.

  • Average daily package volume increased by 6% and revenue per package or yield rose by 3%.
  • Revenue from FedEx Ground grew by 9%.

FedEx Freight segment.

  • Average daily shipment inched up by 6% and revenue per shipment rose by 4.5% while composite weight per shipment declined by 2%.
  • Freight revenue declined by 2% due to decreases in international priority, economy, and airfreight.

 

FedEx Q3 2019 Earnings

Outlook

Looking ahead into fiscal 2019, FedEx lowered its earnings outlook, before year-end MTM retirement plan accounting adjustments, to the range of $11.95 to $13.10 per share from the prior estimate of $12.65 to $13.40 per share. Capital spending is now anticipated to be $5.6 billion. Before year-end MTM retirement plan accounting adjustments and certain other charges, earnings target is now set in the range of $15.10 to $15.90 per share, down from the prior forecast range of $15.50 to $16.60 per share.

On the company’s earnings call, FedEx addressed the threat of Amazon in the shipping space. President and Chief Financial Officer Rajesh Subramaniam said Amazon accounted for less than 1.3 percent of FedEx’s total revenue for the 12-month period ended December 31, 2018.

“Nor is Amazon a threat to our future growth,” said Subramaniam.

Sources: FedEx, AlphaStreet

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