Will Weak Express Unit Hurt FedEx's (FDX) Earnings In Q1?

FedEx Corporation’s (NYSE:FDX) Express segment, which accounts for more than 50% of the company’s total revenues and around 48% of its operating income, is expected to report dismal first-quarter fiscal 2020 results (ended Aug 31, 2019). This, in turn, might hurt FedEx’s quarterly outperformance when it reports on Sep 17. (See more in FedEx to Report Q1 Earnings: What's in the Offing?)

FedEx Express offers time-definite delivery to more than 220 countries and territories, connecting markets that comprise almost the entire gross domestic product of the world. Additionally, the segment employs approximately 227,000 employees and has approximately 100,000 drop-off locations (including FedEx Office stores and FedEx OnSite locations), 670 aircraft and approximately 90,000 vehicles across the globe.

FedEx Express’ Q4 Performance

Quarterly revenues at FedEx Express (including TNT Express) dropped 1% year over year to $9.5 billion. Operating income came in at $766 million, down 12% year over year. Also, operating margin contracted to 8.1% from 9% in the year-ago quarter.

Notably, the unit witnessed a 5% decrease in revenues from international priority packages. Results were hurt by the weakness in global trade and industrial production. Freight revenues at the segment declined 7% to $1,852 million. The sluggish freight scenario in the United States partly contributed to the gloomy picture.

Weakness in FedEx Express Likely to Persist in Q1

As the trade dispute between the two largest economies in the world – the United States and China – is not yet resolved, results of FedEx’s largest revenue-generating segment are likely to be hurt in the soon-to-be reported quarter. A slowdown in global trade and lackluster freight scenario in the United States may also weigh on the segment’s results.

FedEx’s decision not to renew a shipping contract between its Express division and e-commerce giant Amazon (NASDAQ:AMZN) may also drag down the segment’s first-quarter results.

Reflecting the above headwinds, the Zacks Consensus Estimate for first-quarter revenues at the FedEx Express unit stands at $8,868 million. In the year-ago quarter, the segment recorded revenues of $9,222 million.

Overall Earnings & Revenue Projections

For FedEx, which competes with United Parcel Service (NYSE:UPS) in the package delivery space, the Zacks Consensus Estimate for first-quarter earnings is pegged at $3.20, indicating a 7.5% decline from the prior-year quarter’s $3.46 per share. For quarterly sales, the consensus mark of $17.14 billion suggests a marginal increase on a year-over-year basis.

Our Take

Factors like the ongoing trade uncertainty and sluggish industrial production are likely to hamper FedEx Express results in the quarter to be reported. This, in turn, will weigh on this Zacks Rank #3 (Hold) company’s top and bottom lines. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Key Pick

Investors interested in the Zacks Transportation sector may consider GATX Corporation (NYSE:GATX) sporting a Zacks Rank #1. Shares of GATX have gained more than 13% so far this year.

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