North America

Earnings Preview: FedEx Q1 2018 (FDX)

By: Craig Bowles

Overview

FedEx Corporation (FDX) is slated to report 1Q 2018 earnings after the bell on Tuesday, September 19th. The earnings release is expected at approximately 4:15 p.m. ET with a 5:00 p.m. earnings conference call webcast available at FedEx Investor Relations. Results from FedEx are widely seen as a proxy for economic growth and tend to heavily influence the broader market gauges, including the equity index futures.

 

Outliers & Strategy

Key measures:

  • Adjusted/Non-GAAP Earnings Per Share (EPS): The Street estimate is $3.14 (range $2.87 to $3.26) (Yahoo! Finance). Consensus was $3.20 three months ago. If unavailable, GAAP EPS would be the comparable measure.
  • Revenues: Expectations are for $15.38 bln (range $14.89 bln to $15.63 bln).
  • Earnings Per Share (EPS) Guidance for 2Q2018 (if available): The current Street estimate is $3.15 (range $2.98 to $3.43).
  • Adjusted Earnings Per Share (EPS) Guidance for FY2018: Company guidance is $13.20 to $14.00. The current Street estimate is $13.51.
  • FedEx P/E of 19.5 compares to a 5-year average of 24.8; P/B of 3.6 compares to a 5-year average of 2.5; P/S of 1.0 compares to a 5-year average of 0.9; P/CF of 11.8 compares to a 5-year average of 9.3. Dividend yield of 0.8% a 0.6% 5-year average.
  • Analysts view FedEx with 19 (11 three qtrs. ago) Buy ratings, 4 Hold, and 0 Sell, according to MarketBeat.com.
  • FedEx insiders sold a net 78,825 shares over the last three months and 520,134 shares in the past year (source: NASDAQ.com). In January 2017, the company approved a $2.5 billion stock buyback. Quarterly dividend increased to $0.50 from $0.40.
  • FedEx results could have a large impact on other air delivery and freight service companies, such as UTi Worldwide (UTIW) and United Parcel Services (UPS).
  • FedEx shares have a 1-day average price change on earnings of 4.29%. Options are pricing in an implied move of 3.46% off earnings.

Recent News

  • 09/12: Baird recommends investors “use any pullbacks toward the low-$200s as a buying opportunity.” While the size of the impact from the cyber-attack is hard to estimate, Maersk quantified the impact to its operations in mid-August to be $200-300 million. FedEx could be twice as large ($400-600 million), according to a post on Barron’s.com.
  • 09/08: Wolfe Research maintained an Outperform rating on FedEx but expects the company to report a “large” Q1 miss, lower FY EPS guidance, and raise CapEx guidance to account for higher IT spending at TNT. The hurricanes are a negative, according to a post on StreetInsider.com.
  • 08/07: Dow Theory suggests worry but Credit Suisse doesn’t expect the recent weakness in transports to hit FedEx’s business, according to a post on Barron’s.com.
  • 08/03: FedEx will skip special charges on most packages shipped during the holiday season this year in an effort to increase its share of items bought online, according to a post on LATimes.com.
  • 07/25: FedEx expects a “material” financial impact from the NotPetya cyber-attack on its TNT Express business. Parcels are backing up at TNT depots in their thousands after the company admitted it is still struggling to deal with the aftermath of June’s cyber-attack that crippled IT systems around the world, according to a post on TheGuardian.com.

Technical Review

FedEx stock moved up from the low $40s in 2009 to the July’s all-time $219.48 high. UPS has lagged since mid-2016, so might be tempting for some rotation out of FedEx. The previous balance area of support is around $192. (Chart courtesy of StockCharts.com)

Summary

FedEx is just over one year in on a four-year process of integrating TNT Express and may have to hire more people to keep up with the growth of on-line shopping. FedEx warned of a material impact after TNT was hit by a cyber-attack. The stock price has support from steady buybacks. Analyst bullishness has grown the past six months. Insider selling remains at increased levels, however. Over the last four quarters, earnings have beaten and missed estimates by an average of 12c. Estimize consensus for a Non-GAAP EPS of $3.19 on revenue of $15.550 bln compares to analyst consensus of $3.14 on revenue of $15.38 bln. Any change in FY2018 guidance will be of heightened interest given the two hurricanes.

 

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