FedEx Tumbles on Weak Fiscal 2020 Earnings Guidance

Delivery giant sees earnings decline in a weakened geopolitical environment Continue reading... Read More...

Shares of FedEx Corp. (NYSE:FDX), a major transportation and logistics company, tumbled in aftermarket trading on Tuesday as the company lowered its fiscal 2020 guidance on weakening global economic conditions.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The Memphis, Tennessee-based company released its earnings for the quarter ending Aug. 31, its first quarter of fiscal 2020. For the quarter, FedEx reported net income of $745 million, or $2.84 in earnings per share, compared with net income of $835 million, or $3.10 in earnings per share, in the prior-year quarter. Revenues of $17.05 billion underperformed the Refinitiv consensus estimate of $17.06 billion, while adjusted earnings of $3.05 per share underperformed the consensus estimate of $3.15 per share.” data-reactid=”12″>The Memphis, Tennessee-based company released its earnings for the quarter ending Aug. 31, its first quarter of fiscal 2020. For the quarter, FedEx reported net income of $745 million, or $2.84 in earnings per share, compared with net income of $835 million, or $3.10 in earnings per share, in the prior-year quarter. Revenues of $17.05 billion underperformed the Refinitiv consensus estimate of $17.06 billion, while adjusted earnings of $3.05 per share underperformed the consensus estimate of $3.15 per share.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Geopolitical issues weighed on earnings performance” data-reactid=”31″>Geopolitical issues weighed on earnings performance

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="FedEx CEO Fredrick Smith said increasing trade tensions and policy uncertainty hindered company performance during the quarter, with operating results down due to other factors, including increased costs to expand service offerings and continued mix shift to lower-yielding services. Although FedEx's operating margin has increased approximately 1.7% per year on average over the past five years based on GuruFocus’ loglinear regression model, the company’s profit margin of 6.87% is near a 10-year low of 4.52% and underperforms 61.07% of global competitors.” data-reactid=”32″>FedEx CEO Fredrick Smith said increasing trade tensions and policy uncertainty hindered company performance during the quarter, with operating results down due to other factors, including increased costs to expand service offerings and continued mix shift to lower-yielding services. Although FedEx’s operating margin has increased approximately 1.7% per year on average over the past five years based on GuruFocus’ loglinear regression model, the company’s profit margin of 6.87% is near a 10-year low of 4.52% and underperforms 61.07% of global competitors.

FedEx announced in August it ended its FedEx Ground contract with Amazon.com Inc. (NASDAQ:AMZN), which also contributed to the decline in performance.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Company lowers fiscal 2020 guidance” data-reactid=”47″>Company lowers fiscal 2020 guidance

The company said it now forecasts earnings per share between $10 and $12, excluding the fiscal-year-end mark-to-market retirement plan accounting adjustment. The new guidance represents an earnings per share decline of $1.25 to $3.25 from the fiscal 2019-end earnings of $13.25 prior to the retirement plan accounting adjustment. FedEx also warned that the guidance assumes moderate U.S. economic growth, no further weakening in international economic conditions from the company’s current forecast and no further deterioration in international trade policies and relationships.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Stock falls in aftermarket trading on weak earnings and guidance” data-reactid=”49″>Stock falls in aftermarket trading on weak earnings and guidance

Shares of FedEx traded over 9% below its closing price of $173.30 as the company missed both top-line and bottom-line estimates.

GuruFocus ranks FedEx’s financial strength 5.4 out of 10: Although the company has a solid Piotroski F-score of 5, its debt-to-equity ratio underperforms 62.79% of global competitors. The website warns that while the company has increased its long-term debt by $3.6 billion over the past three years, FedEx’s interest coverage ratio of 9.35 is above Benjamin Graham’s safe threshold of 5 and outperforms 65.42% of global transportation and logistics companies.

Gurus with large holdings of FedEx include Dodge & Cox, PRIMECAP Management (Trades, Portfolio) and Bill Gates (Trades, Portfolio)’ foundation trust. “Big Short” investor Michael Burry also has a position in the company.