FedEx (FDX) will report fourth quarter (May) results this afternoon and host a call at 5:00 PM ET.
The multinational courier service guided for fourth quarter operating income of $1.95-2.05 billion (up 13.5% at the midpoint) at a 11.0-11.8% margin excluding TNT integration expenses.
Analysts expect EPS up 34% with revenue up 10%. FedEx has exceeded earnings estimates four quarters in a row and revenue estimates two quarters in a row.
Last quarter, FedEx said it expects strong operating performance in each transportation segment in the fourth quarter.
Management guided for a fourth quarter adjusted operating margin of 9.9-10.4% for the Express segment, up from 5.4% in the third quarter as the company continues to work through integrating Dutch courier TNT Express. Last quarter, total package volume declined 1%, as lower international domestic and U.S. domestic volumes offset international export package volume growth of 1%. In last year's fourth quarter, The Express segment reported a 12.7% operating margin but TNT Express came in at just 4.4%.
Management guided for margin expansion at the other two segments.
FedEx expects a fourth quarter operating margin of 17.0-17.5% for the Ground segment vs. 15% last year. Last quarter, the company handled the peak season well. Strong revenue growth (+11%) was driven by average daily package volume growth of 6% and higher base rates.
FedEx expects a Freight segment operating margin of 8-9% vs. 7.8% last year. The freight market remains strong. Third quarter revenue increased due to less-than truckload (LTL) revenue per shipment growth of 8% and average daily LTL shipment growth of 6%.
Last quarter, the company raised adjusted EPS guidance to $15.00-15.40 from $12.70-13.30 due to foreign tax benefits, U.S. tax reform and improved operating performance. FedEx also lowered capital expenditure guidance by $100 million to $5.8 billion.
Like most transportation companies (ETF: IYT), FedEx has a good read on economic activity. Last quarter, the company raised its US GDP growth forecast to +3% from +2.5%. Management also raised its global GDP growth forecast to 3.2% from +3.0%. With US economic growth tracking towards 3% for Q2 and Q3, we can expect FedEx's outlook to remain upbeat.
However, we can expect management to reiterate its warning with respect to the protectionism that is coming from the White House.
Analysts currently expect fiscal 2019 EPS up 15.7% to nearly $17.50 with revenue up 6%. The company's annual EPS growth target is +10-15%.
FDX has a $71 billion market cap and trades at ~17x EPS or 15x FY19 EPS estimates. UPS (UPS) has a $100 billion market cap and trades at 16x calendar year 2018 EPS estimates.