FedEx (FDX 184.21, +2.02, +1.11%) will report second quarter (November) results
this afternoon and host a call at 5:00 p.m. ET.
Analysts expect the multinational courier service to report second quarter adjusted EPS up 24% with revenue up 8%.
Three months ago, management forecast another record holiday season.
Last quarter, FedEx missed earnings estimates for the first time in six quarters. The company recognized higher variable compensation accruals during the quarter, as last year's first quarter results were negatively impacted by the NotPetya cyberattack at TNT Express. The company also accelerated wage increases for certain hourly employees in the fourth quarter of 2018 due to the enactment of the TCJA.
First quarter operating income grew 9% to $1.19 bln, benefiting from higher volumes, increased yields and a favorable net impact of fuel at all transportation segments. The adjusted operating margin slipped 10 basis points to 7.0%, but the FedEx Express operating margin grew 20 basis points to 5.1%.
FedEx did manage to exceed top-line expectations for the fourth quarter in a row and revenue growth accelerated to 11.5%.
"FedEx delivered higher first-quarter earnings driven by solid execution of our business plan and a strong U.S. economy," said Frederick Smith, FedEx Chairman and Chief Executive Officer. "We are very optimistic about our prospects for profitable growth and remain confident we will reach our goal to improve FedEx Express operating income by $1.2 billion to $1.5 billion in fiscal 2020 versus fiscal 2017."
The company has guided for fiscal 2019 EPS of $17.20-17.80 before year-end MTM retirement plan accounting adjustments and excluding TNT Express integration expenses (up from $17.00-17.60 previously). The company has guided for revenue growth of 9% and an operating margin of 8.5%, excluding TNT merger expenses.
The highly cyclical transportation industry has a good read on economic activity, so any commentary regarding macroeconomic conditions will be important as markets have priced in more uncertainty heading into 2019.
Managing the peak holiday season is key for the company as ecommerce continues to surge. While the U.S. consumer has been strong this year, investors are now more focused on the outlook for next year. Meanwhile, analysts are focused on margin expansion.
Analysts currently expect fiscal 2019 EPS up 13% with revenue up 8.5%. The company's annual EPS growth target is 10-15%.
FDX has a $49 bln market capitalization and trades at ~11x EPS estimates, down from ~15x three months ago. With slightly better margins, UPS (UPS) has a $84 bln market cap and trades at ~13x earnings.
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