Before Wednesday’s opening bell in the U.S., FedEx (NYSE:FDX) will be one of the first S&P 500 companies to report Q1 2015 results. Currently, the Estimize community is looking for EPS of $1.92 -- three cents higher than the Wall Street estimate. Revenue estimates of $11.87B are slightly higher than the Street’s consensus of $11.82B.
Despite what should be a great environment for the transport names, lower gas prices paired with heightened consumer confidence and the increasing popularity of e-commerce shopping, FedEx and some of its peers missed their Q4 expectations. Earnings per share for the latest quarter came in at $2.14, lower than the Estimize consensus of $2.17 and much lower than the $2.22, which the Street was anticipating. Revenue per package fell due to decreased fuel surcharges and lower weight, and international revenue per package was flat due to unfavorable currency trends.
It’s important to note, however, that FedEx’s Q4 numbers ended with November results, therefore only capturing the very beginning of the holiday shopping season. Sales during black Friday weekend and cyber Monday were admittedly disappointing, with holiday shopping not heating up until the end of December and even carrying into the beginning of January. With holiday sales for the 2014 season hitting a 3-year high, and new records for e-commerce sales, Q1 revenues should be enough to offset any currency headwinds if the company managed properly.
Another win for the transport stocks will be the recently introduced “dimensional weight pricing,” which previously only applied to packages greater than 3 feet. This is essentially the same as increasing prices, and there is no downside for logistics companies. If shippers decide to right-size their packaging, FedEx will be able to take more packages per trip, if shippers do not adapt and continue to use boxes that are too large, they will just have to pay up for it. Either way, FedEx wins. The rumor is that this could boost shipping costs by 5%-25%.
FedEx’s target price was recently upgraded by Credit Suisse (NYSE:CS) and Deutsche Bank (NYSE:DB), which certainly helped the stock -- which is up 2% for the year.