FedEx (FDX 243.05, -12.68, -4.96%) is down after the company missed earnings
estimates yesterday afternoon.
Overall first quarter results were solid. Revenue grew 11.5% to $17.1 bln, 1% above estimates. Operating income improved 11% during the quarter, benefiting from higher volumes, increased yields and a favorable net impact of fuel at all transportation segments.
Today’s decline is likely related to the EPS which came in $0.37 below estimates. FedEx recognized substantially higher variable compensation accruals during the quarter, as last year's first quarter results were negatively impacted by the NotPetya cyberattack at TNT Express. Also, during the fourth quarter of fiscal 2018 the company accelerated wage increases for certain hourly employees due to the enactment of the Tax Cuts and Jobs Act. Collectively, the impact of these items negatively affected year/year results by $170 mln, or $0.48/share.
Offsetting the EPS miss, the company actually raised EPS guidance for fiscal 2019 to $17.20-17.80 from $17.00-17.60, citing the strong economy and successful revenue management initiatives. The company reaffirmed 9% revenue growth and adjusted operating margins at 8.5% for the year. FedEx sees free cash flow increasing significantly this year. The company will complete the TNT Express acquisition integration by year end.
Chief Executive, Frederick Smith, said "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 bln to $1.5 bln in fiscal 2020 versus fiscal 2017."
FedEx expects another record holiday season as eCommerce continues to take retail market share. The company is also seeing a lot of momentum with small business customers.
From an economic perspective, FedEx expects another year of solid growth despite some slowing in Europe and China. The company said uncertainty around trade is not helping since FedEx prefers lower trade barriers. Chinese imports represent less than 2% of its business and tariffs will impact just a portion of that.
FedEx has a ~$66 bln market capitalization and trades at just under 15x EPS while larger rival with better margins UPS (UPS) has a $102 bln market value and trades at 16x EPS.
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