FedEx (FDX) Q3 Earnings Lag, View On Freeze For Coronavirus Woes

FedEx Corporation (NYSE:FDX) reported mixed results for the third quarter of fiscal 2020 (ended Feb 29). While earnings per share were lower-than-expected, revenues surpassed expectations. Moreover, the package delivery company suspended its earnings outlook for fiscal 2020 due to the coronavirus-led uncertainty.

Results in Detail

The company’s third-quarter fiscal 2020 adjusted earnings (excluding 21 cents from non-recurring items) of $1.41 per share fell short of the Zacks Consensus Estimate by 8 cents. Moreover, the bottom line plunged 53.5% year over year. Results were hurt by factors like the coronavirus pandemic, weak macroeconomic conditions, higher costs at the Ground unit due to expanded service offerings, loss of business with Amazon (NASDAQ:AMZN) , shift to lower-yielding services and a highly competitive pricing scenario.

Quarterly revenues inched up 2.8% year over year to $17,487 million and also surpassed the Zacks Consensus Estimate of $17,068.7 million despite coronavirus-related woes. Operating income (on an adjusted basis) plunged 50.9% year over year to $483 million in the reported quarter due to sluggish global economy and elevated costs. Operating margin (adjusted) also deteriorated to 2.8% from 5.8% in the year-ago period.

Segmental Performance

Quarterly revenues at FedEx Express (including TNT Express) dipped 1% to $8,924 million due to 5% decline in freight revenues as a result of the slowdown in global economy and certain other factors. Segmental operating income (adjusted) decreased to $199 million from $445 million a year ago. Also, segmental operating margin contracted to 2.2% from 4.9% in third-quarter fiscal 2019, on an adjusted basis.

FedEx Ground revenues rose 11% year over year to $5,845 million in the period under consideration owing to residential delivery volume growth. Operating income came in at $355 million, slumping 39% year over year due to 17% increase in segmental operating expenses. Segmental operating margin shrank to 6.1% from 11.1% in the prior-year quarter.

FedEx Freight revenues slipped 1% year over year to $1,738 million due to softness in volume growth. The segment’s operating income increased 16% to $113 million, driven by lower operating expenses. Moreover, operating margin expanded to 6.5% from 5.5% in the year-ago quarter.

Remarks on Future

Management at FedEx is clueless about the duration of persistence of the coronavirus pandemic and its resultant impact on the global economic scenario. However, the company’s chairman and CEO Fred Smith sounded upbeat about the company’s ability to handle higher demand for its international express-delivery services owing to the coronavirus-led reduction in passenger airlines.

Additionally, the company, in a bid to control costs and drive its bottom line, is managing capacity, retiring older and less-efficient planes apart from curbing expenses in residential delivery.

Zacks Rank & Key Picks

FedEx carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the Zacks Transportation sector include Frontline Limited (NYSE:FRO) and Azul (NYSE:AZUL) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Current-year earnings per share of Frontline and Azul are expected to grow 122% and 7.2%, respectively.

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