FedEx (FDX 196.65, +4.81) has climbed 2.5% in the early going despite reporting below-consensus earnings for the third quarter.
The logistics company reported earnings of $2.35 per share, which was shy of market expectations while revenue grew 18.1% year-over-year to an in-line $15.00 billion. It is worth noting that the market has been preparing for some disappointment from the transport space, evidenced by the recent underperformance in the Dow Jones Transportation Average, which is down 5.2% this month versus a 0.7% decline in the Dow Jones Industrial Average and a comparable retreat in the S&P 500 (-0.8%).
Furthermore, FedEx reaffirmed its guidance for the fiscal year, which has provided some relief, making the overall report better than feared.
Third quarter operating margin declined to 7.5% from 9.2% one year ago. This was due to the negative net impact of fuel, one fewer operating day at FedEx Express and FedEx Ground, and network expansion at FedEx Ground.
FedEx Express revenue grew 3.4% to $6.78 billion due to higher base rates and package volumes, which were partially offset by one fewer operating day. Segment operating income fell 2.0% to $586 million.
FedEx Ground revenue increased 6.0% to $4.69 billion thanks to higher base rates and commercial volume growth. This was partially offset by lower residential volume and one fewer operating day. Operating income declined 8.0% to $515 million. This was due to higher rent, depreciation, and staffing that resulted from network expansion.
FedEx Freight revenue increased 3.0% to $1.49 billion thanks to higher base rates and fuel surcharges. Operating income fell 27.0% to $41 million due to higher salaries/wages and increased technology expenses.
Looking ahead, the company reaffirmed its outlook for the remainder of the fiscal year, expecting full year earnings between $11.85 and $12.35 per share, which envelops current market expectations.
FedEx made a slight upward adjustment to its 2017 GDP growth forecast for the U.S. (to 2.3% from 2.2%), but lowered its outlook for global growth to 1.6% from 2.6%. The company shared its initial expectations for 2018, expecting U.S. GDP growth of 2.5% and global growth of 2.8%.