FedEx Corp. is expected to deliver strong results in its fiscal first quarter, largely due to recent developments within the package delivery industry.
According to Evercore ISI analyst Jonathan Chappell, two significant events influenced FedEx’s performance during the three months of F1Q24. First, the labor negotiations between United Parcel Service Inc. (UPS) and the Teamsters union led to market-share shifts in favor of FedEx. Second, the bankruptcy and liquidation of one of FedEx Freight’s largest competitors also contributed to increased volumes and pricing in that segment.
In June, when FedEx reported its fiscal fourth-quarter results, the company highlighted the contract negotiations between UPS and the Teamsters union as an opportunity for market share expansion. Similarly, in their second-quarter results announcement, UPS revealed that they experienced higher-than-expected volume diversion during negotiations.
The bankruptcy declaration of Yellow Corp., a prominent trucking company, in August further bolstered FedEx’s position in the industry. Analysts suggest that FedEx likely gained increased volumes and improved margins following Yellow’s closure.
Despite these positive developments, the demand environment remains relatively subdued for FedEx. Factors such as inflation, rising interest rates, and a slowdown in global trade continue to pose challenges to volume growth.
FedEx is scheduled to release its quarterly results for the period ending in August. The company has consistently exceeded earnings per share expectations in recent quarters but has struggled to meet revenue projections. Specifically, the Express business division has fallen short of revenue expectations for the past six quarters, while Ground and Freight have missed targets for the past three quarters.
Investors eagerly await FedEx’s upcoming earnings report, which will provide insights into the company’s performance amidst industry shifts and challenging market conditions.
FedEx Faces Headwinds as First Quarter Results Approach
As FedEx prepares to release its first quarter results, analysts have highlighted several potential challenges the company may face. While market share gains are expected to contribute to positive results, there are concerns about the impact of muted China activity, moderating fuel prices, increased airfreight capacity, and a soft economic backdrop.
According to a FactSet survey of analysts, the following are the expected figures for FedEx’s first quarter:
EPS: Excluding nonrecurring items, earnings per share are projected to be $3.71, compared to $3.44 in the same period last year. The consensus estimate has increased slightly from $3.68 at the end of August, but has decreased from $3.73 at the end of June.
Total Revenue: The company is expected to report total revenue of $21.74 billion, down from $23.20 billion a year ago. This estimate has also decreased slightly from $21.77 billion at the end of August and $21.79 billion at the end of June.
FedEx Express Revenue: Revenue for FedEx Express is expected to be $10.26 billion, a decrease from $11.13 billion last year.
FedEx Ground Revenue: FedEx Ground revenue is projected to increase slightly to $8.17 billion from $8.16 billion a year ago.
FedEx Freight Revenue: Revenue for FedEx Freight is anticipated to decline by 14.5% to $2.33 billion, compared to $2.17 billion last year.
Despite these challenges, FedEx’s stock has outperformed its closest competitor, UPS, and the broader stock market in recent months. Over the past three months, FedEx’s stock has gained 7.1%, while UPS shares have dropped by 11.5%. In comparison, the Dow Jones Transportation Average (DJT) has seen a modest increase of 2.5% and the Dow Jones Industrial Average (DJIA) has edged up by 0.6%.
The first quarter results will be important for establishing a track record of meeting or exceeding expectations. However, analysts emphasize that the full-year guidance, provided by FedEx in June, will have the greatest impact on investor sentiment. With fiscal 2024 adjusted earnings per share guidance in the range of $16.50 to $18.50, FedEx intentionally left the range wide due to macroeconomic uncertainties.
In summary, although various headwinds pose challenges for FedEx, analysts and investors will be closely watching the first quarter results and full-year guidance to gauge the company’s performance and outlook.
