FedEx (FDX 173.21, -8.20, -4.52%) is trading lower after the company missed
third quarter estimates and lowered earnings guidance for the second quarter in
The story is very similar to what we heard from FedEx three months ago, but it did mark the first time in over three years that the company missed on the top and bottom lines.
Third quarter adjusted operating income grew 2%, well below estimates, as margins were flat. Revenue rose by 3%, missing estimates by nearly 4%. That represents the company’s largest miss on the top line since May of 2009.
FedEx continues to struggle with the $5 bln acquisition of TNT Express. FedEx announced a deal for the Dutch courier almost three years ago, and the company notes that “significant progress” has been made in the integration process, with operational integration now complete in the U.S., Canada, and the Middle East; however, integration costs are expected to run into fiscal 2021. The integration process has been quite messy for the shipper dealing across numerous countries in Europe. Weak economic activity in the region has only made matters worse.
Slowing economic growth globally, but especially in Europe, and trade angst continue to impact FedEx's business. Uncertainty regarding Brexit in Europe and a potential trade deal between the two largest economies in the world (the United States and China) continues to impact confidence. FedEx also noted that the government shutdown and unfavorable weather dampened results in the U.S.
While these issues are largely out of the company's control, management did point to some green sprouts, indicating potential for improvement heading into spring. Green shoots became a common term on Wall Street when we started recovering from the financial crisis almost a decade ago.
Still, the company lowered fiscal 2019 adjusted EPS guidance to $15.10-15.90 from $15.50-16.60.
JP Morgan downgraded the stock to Neutral this morning.
The stock is historically quite cheap, trading at ~11x seemingly depressed earnings. The earnings multiple has averaged ~15x over recent years, which is in-line with larger rival UPS's (UPS 107.92, -2.43, -2.20%) current valuation.
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