FedEx (FDX) Missed Q1 Earnings Estimates, Revenue Increases Year-over-Year

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FedEx CorporationFDX’s earnings for the first quarter of fiscal 2023 (ended Aug. 31, 2022) (excluding 10 cents of one-time items) of $3.44 per share beat Zacks’ consensus estimate of 3.69 $. Continuing last week’s position, management pointed out that fiscal first quarter results were impacted by weak volumes globally.

Quarterly revenue of $23,200 million was below Zacks’ consensus estimate of $23,213.4 million and was up 5.44% from the reported year-ago fiscal quarter figure in due to efficiency improvements, including fuel surcharge increases.

Operating expenses (on a reported basis) increased 7% to $22.1 billion. Salary and benefits expenses increased by 1% in the first quarter of the year. Purchased freight increased 2% due to difficult labor market conditions. Fuel expenses jumped 81%. Other operating expenses increased by 11%, while rental expenses increased by 2%.

Operating profit (on a reported basis) was down 15% from the reported year-ago fiscal quarter figure of $1.19 billion. Operating profit (on an adjusted basis) decreased 17.4% from the prior year fiscal quarter reading to $1.23 billion for the reported quarter. Operating margin (adjusted) decreased to 5.3% from 6.8% in the prior year fiscal period. To navigate a weaker than expected trading environment, FDX is actively cutting costs. In the first quarter, FDX generated cost savings of approximately $300 million.

FedEx Corporation Pricing, Consensus, and EPS Surprise

FedEx Corporation price-consensus-eps-surprise-chart | Quote FedEx Corporation

Sector performance

Quarterly revenue for FedEx Express (including TNT Express) increased 1% from the year-ago fiscal quarter level to $11.13 billion. Within this segment, package revenue increased 2%, while freight revenue was flat compared to the prior year fiscal quarter. Segment operating profit decreased 69% from the level of the fiscal quarter last year to $174 million. The reduction in the overall volume of parcels and freight hurt the operating result of the segment.

FedEx Ground revenue increased 6% year over year to $8.16 billion for the reporting period due to increased fuel surcharges, among other factors. Operating profit was $694 million, up 3% from the count for the fiscal quarter last year. Segment operating results benefited from growth in FedEx Home Delivery and yield management stocks.

FedEx Freight’s revenue rose 21% from the year-ago fiscal quarter’s reported figure of $2.72 billion, driven by higher revenue per shipment. Segment operating profit jumped 67% to $651 million, thanks to performance management measures including higher fuel surcharges. Average daily shipments decreased by 5%, while revenue per shipment increased by 27%.

Capital expenditures for the quarter decreased 18% from the prior year level to $1.28 billion.

Liquidity

FedEx ended the first quarter of fiscal 2023 with cash and cash equivalents of $6.85 billion, compared to $6.89 billion recorded as of May 31, 2021. Long-term debt (less current portion ) was $19.91 billion, compared to $20.18 billion recorded at the end of fiscal 2021.

Outlook

The management has kept the indications it had provided last week when publishing the preliminary results. FDX expects revenue in the range of $23.5 billion to $24 billion for the fiscal second quarter. The Zacks consensus estimate is currently pegged at $23.7 billion. Earnings per share for the second fiscal quarter (excluding costs related to business optimization initiatives and business realignment activities) are expected to be $2.75 or higher. The Zacks consensus estimate is currently pegged at $4.02. FDX projects capital expenditures of $6.3 billion in fiscal 2023.

FDX, which currently holds a Zacks Rank #5 (Strong Sell), reaffirmed its intention to repurchase $1.5 billion of its common stock in fiscal 2023. FedEx plans to repurchase shares worth $1 billion in the second quarter of the fiscal year. Over the same period, FDX expects to generate approximately $700 million in savings.

Savings measures for fiscal year 2023

FedEx expects to generate cost savings in the range of $2.2 billion to $2.7 billion in fiscal year 2023. Cost reduction measures will consist of:

$1.5-1.7 billion at FedEx Express (including reduced flight frequencies and temporary aircraft parking)

$350–500 million to the land unit (including closing curbside operations, suspending some Sunday operations, and other transportation spending actions)

$350-500 million for shared and apportioned overhead costs,

Announced shipping rate hike

To bolster revenue despite weak demand for package deliveries globally, FedEx announced an increase in package rates. To that end, FedEx Express, FedEx Ground and FedEx Home Delivery rates will increase by an average of 6.9% starting January 2, 2023. Its freight unit rates will increase by an average of 6.9% to 7 .9%, depending on the customer’s transmission rate range.

Actions to consider

Some top-ranked stocks in the Zacks Transportation sector are Triton International TRTN and CH Robinson CHRW.

Triton is being helped by the gradual increase in trade volumes and container demand. TRTN expects container demand to remain strong throughout 2022. Measures to reward its shareholders through dividends and buybacks inspire confidence in the stock.

Triton has an expected earnings growth rate of 22.4% for the current year. TRTN’s net income has exceeded the Zacks consensus estimate in each of the past four quarters, averaging 7.5%. TRTN is currently showing a Zacks rank #1 (Strong Buy). You can see the full list of today’s Zacks #1 Rank stocks here.

CH Robinson is helped by an improving freight scenario in the United States. Efforts to control costs also bode well. The measures aimed at rewarding its shareholders are instilling confidence in the title.

CHRW has a nice track record. Net income has exceeded the Zacks consensus estimate in three of the last four quarters (missing the target in the last). The average beat is 24.2%. The stock has seen the Zacks consensus estimate for 2022 earnings revised up 17.3% in the past 60 days. CH Robinson currently wears a Zacks rank #2 (purchase).

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