FedEx (FDX) Down 39% In A Year: Will The Road Remain Bumpy?

FedEx Corporation (NYSE:FDX) has been plagued by persistent weakness in the Express segment, its primary revenue generating segment, due to weak global economy as a result of the trade tensions. High costs at the Ground unit over the past two quarters have further affected the company’s performance. Due to these headwinds, shares of FedEx have plunged 39% in a year’s time compared with the industry’s 14% decline.

FedEx’s struggles are evident from its dismal earnings history. The company missed estimates in three of the trailing four quarters, the average negative surprise being 0.6%.

Earnings Miss in First-Quarter Fiscal 2020

The company’s recent earnings miss came in the first quarter of fiscal 2020 when it also reported lower-than-expected revenues. Moreover, both the bottom and the top line (marginally) declined year over year. Results were primarily affected by sluggish global trade due to the U.S.-China trade war as well as higher costs (incurred $71 million TNT Express integration expenses) and loss of business at the Express and Ground segments.

Moreover, FedEx Express (including TNT Express) and Freight segment revenues dipped 3% each. However, FedEx Ground revenues rose 8% year over year. (Read more: FedEx Down 10% on Q1 Earnings Miss & Dull FY2020 View)

What Lies Ahead?

With FedEx’s substantial exposure in China, the company is likely to remain under pressure unless the trade dispute resolves. The company’s lowered earnings outlook for fiscal 2020 (ended May 31, 2020) is indicative of its rough patch continuing not just through this year-end but perhaps early next year as well.

On expectations of lower revenues, increased FedEx Ground costs and the company’s major loss from its Ground business in August, the company now anticipates earnings per share (prior to the year-end MTM retirement plan accounting adjustment and excluding TNT Express integration expenses) between $11 and $13 for fiscal 2020 compared with adjusted earnings of $15.52 reported in fiscal 2019. The mid-point of the guided range — of $12 — is below the Zacks Consensus Estimate of $12.56.

Previously, during the fourth quarter of fiscal 2019 earnings release, management stated that adjusted earnings are estimated to decline in the mid-single-digit percentage point year over year during fiscal 2020.

Zacks Rank & Key Picks

FedEx carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader Transportation sector are Radiant Logistics, Inc. (NYSE:RLGT) , Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS) and Copa Holdings, S.A. (NYSE:CPA) . While Radiant Logistics carries a Zacks Rank #2 (Buy), Controladora Vuela and Copa Holdings sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Radiant Logistics, Controladora Vuela and Copa Holdings have rallied more than 22%, 90 % and 21%, respectively, so far this year.

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