FedEx (FDX) To Post Q3 Earnings: Will Costs Mar Results?

FedEx Corporation (NYSE:FDX) is set to release third-quarter fiscal 2020 results on Mar 17, after market close.

The Zacks Consensus Estimate for third-quarter fiscal 2020 earnings has been revised 23.9% downward in the last 60 days. Moreover, the company has a disappointing earnings history, having missed the consensus mark in three of the trailing four quarters and beating estimates in the remaining quarter. Given this backdrop, let’s delve into the factors that might have impacted the company’s performance in the soon-to-be-reported quarter.

As in the last two quarters, FedEx’s primary revenue generating segment – FedEx Express – is likely to have witnessed some softness in revenues due to removal of the Amazon (NASDAQ:AMZN) contract (for providing the company with domestic express delivery services) on Jun 30. Notably, the Zacks Consensus Estimate for segmental revenues in the to-be-reported quarter indicates a 1.7% decline from the year-ago reported number.

Additionally, high costs at the Ground unit and TNT Express integration expenses are expected to have weighed on the company’s bottom line. Moreover, FedEx, which competes with the likes of United Parcel Service (NYSE:UPS) , is investing significantly in upgrading facilities. Consequently, the escalating capital expenses might get reflected in the earnings number.

With FedEx having substantial exposure to China, the coronavirus outbreak is also likely to have dented its earnings due to low volume of shipments.

However, robust e-commerce growth is expected to have driven the company’s top line in the fiscal third quarter. The company is likely to have delivered record package volumes of more than 33 million on Cyber Monday, Dec 2, 2019. The ground unit is expected to have benefited from residential delivery volume growth. Evidently, the Zacks Consensus Estimate for Ground revenues indicates a 5.6% rise from the figure reported a year ago.

Earnings Whispers

The proven Zacks model does not predict an earnings beat for FedEx in the third quarter of fiscal 2020. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, this is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: FedEx has an Earnings ESP of -26.86% as the Most Accurate Estimate is pegged at $1.28, lower than the Zacks Consensus Estimate of $1.75. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: FedEx carries a Zacks Rank #4 (Sell).

Highlights of Q2 Earnings

In the last reported quarter, the company witnessed a negative earnings surprise of 10%. Quarterly revenues also lagged the Zacks Consensus Estimate. Moreover, both the top line and the bottom line declined year over year. Sluggishness in the global economy and elevated costs affected the company’s results.

A Stock to Consider

Investors may consider CarMax, Inc. (NYSE:KMX) as it possesses the right combination of elements to beat on earnings in its next release.

CarMax has an Earnings ESP of +2.18% and a Zacks Rank #3. The company will release fourth-quarter fiscal 2020 results on Apr 2.

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