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What the Big Earnings Surprise From FedEx Means For The U.S. Economy

Published 06/22/2014, 01:56 AM
Updated 07/09/2023, 06:31 AM
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FedEx Corporation (NYSE:FDX) is a benchmark stock, and it recently soared. The company delivered a solid earnings beat, and the position advanced six percent (or almost nine points) to a new record high on the news.

Even if you are not interested in investing in a company like FedEx, it’s worthwhile following the company’s financial results, because it is a very good barometer on the U.S. economy among others. What FedEx reports all adds up to more intelligence on what’s happening in certain parts of the economy and regional trends as well.

FedEx blew past Wall Street consensus with its fiscal 2014 fourth-quarter financial report. The company’s revenue in its fiscal fourth quarter grew to $11.8 billion from $11.4 billion comparatively. Earnings were the surprise, growing to $730 million from $679 million. And like so many other corporations, FedEx has been buying back a lot of its own shares, which contributed to strong earnings-per-share growth of $2.46 from $0.95 ($2.13 excluding charges) on a diluted, comparative basis.

The company said it bought back 9.9 million shares during its fiscal fourth quarter for a total amount in the fiscal year coming to 36.8 million. The company recently increased its quarterly dividend by some 33%. Management reported that it is seeing volume growth in the marketplace and it expects its 2015 fiscal year to be better than the one that just ended. FedEx Express saw three-percent growth in average daily volume, while FedEx Ground experienced an eight-percent comparative quarterly gain, mainly due to e-commerce demand.

The stock had a great day on news of its better-than-expected financial report. It opened nicely higher, and demand forced the position upward all day. If it holds above its current price, it will have broken out of its consolidation trend since the beginning of the year, which is meaningful.

When the company’s Form 10-Q is released, it will be worth reading because it should break down business conditions in the most recent quarter on a regional basis, which is useful to be aware of. FedEx is part of the Dow Jones Transportation Average, which itself is toying with its highs and is a strong indicator for the broader stock market.

United Parcel Service, Inc. (NYSE:UPS) is about double FedEx’s market capitalization, but the company doesn’t report until the end of July. What package delivery companies say about their business is material to the stock market and those invested in it. Similar to railroad and trucking companies, their business conditions are a reflection and a good barometer on the current state of the economy.

Over time, FedEx has typically been a better stock market investment than United Parcel Service and its valuation is a little greater. The company’s fiscal fourth quarter was just plain good and it surprised the Street.

I think we’re going to see positive surprises in the upcoming second-quarter reporting season. Some brand-name companies have been increasing their guidance lately. A mature package delivery company may not be on most investors’ wish list of stocks, but their operations are telling and that’s the whole point.

So what’s the takeaway from FedEx’s earnings? 1) The company’s numbers are always worth following for market and economic intelligence; and 2) These numbers are confirmation that stocks are a hold, but there’s no bandwagon to jump onto yet.

Disclaimer: There is no magic formula to getting rich. Success in investment vehicles with the best prospects for price appreciation can only be achieved through proper and rigorous research and analysis. The opinions in this e-newsletter are just that, opinions of the authors. Information contained herein, while believed to be correct, is not guaranteed as accurate. Warning: Investing often involves high risks and you can lose a lot of money. Please do not invest with money you cannot afford to lose.

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