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FedEx Shares Down 13.5% on Earnings and Global Trade Concerns


FedEx Corp. shares are trading much lower today after it reported Q1/20 earnings. The firm confirmed it will raise prices by 4.9% to 5.9% in January 2020.

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After the close of trading yesterday express air freight carrier FedEx Corp. (FDX:NYSE) announced consolidated earnings results for the first quarter ended August 31, 2019, for its 2020 fiscal year. In the report the company advised that this year's and last year's quarterly consolidated results have been adjusted for TNT Express integration expenses of $71 million ($0.21 per diluted share) for this year and $121 million ($0.36 per diluted share) for last year.

The company reported Q1/20 revenue of $17.048 billion compared to $17.052 in Q1/19. GAAP operating income decreased to $977 million in Q1/20 down from $1.071 billion in Q1/19, with the operating margin decreasing to 5.7% from 6.3% in the same corresponding period. GAAP net income in Q1/20 decreased to $745 million, or $2.84 per diluted share in Q1/20, compared to $835 million, or $3.10 per diluted share in Q1/19.

FedEx's Chairman and CEO Frederick W. Smith commented, "Our performance continues to be negatively impacted by a weakening global macro environment driven by increasing trade tensions and policy uncertainty...Despite these challenges, we are positioning FedEx to leverage future growth opportunities as we continue the integration of TNT Express, enhance FedEx Ground residential delivery capabilities and modernize the FedEx Express air fleet and hub operations."

The firm outlined in the release that "operating results declined primarily due to weakening global economic conditions, increased costs to expand service offerings and continued mix shift to lower-yielding services. The impact of one fewer operating day and the loss of business from a large customer also negatively impacted results. These factors were partially offset by lower variable incentive compensation expenses, revenue growth at FedEx Ground and increased yields at FedEx Freight."

The company reaffirmed that as previously announced, effective January 6, 2020, FedEx Express, FedEx Ground and FedEx Home Delivery shipping rates will increase by an average of 4.9%, while FedEx Freight shipping rates will increase by an average of 5.9%.

FedEx States indicated in the report that it is unable to forecast the fiscal 2020 year-end mark-to-market (MTM) retirement plan accounting adjustment. Therefore, as a result; the company is unable to provide a fiscal 2020 earnings per share or effective tax rate (ETR) outlook on a GAAP basis.

The company added that it is lowering its fiscal 2020 earnings forecast as the company's revenue outlook has been reduced due to increased trade tensions and additional weakening of global economic conditions since the company's initial fiscal 2020 forecast in June. The company's revised outlook reflects increased FedEx Ground costs and August's loss of FedEx Ground business from a large customer. In addition, the FedEx ETR is now expected to be 2426% before the year-end MTM retirement plan accounting adjustment, due to lower-than-expected earnings in certain non-U.S. jurisdictions.

FedEx now forecasts earnings of $10.0012.00 per diluted share before the year-end MTM retirement plan accounting adjustment, and earnings of $11.0013.00 per diluted share before the year-end MTM retirement plan accounting adjustment and excluding TNT Express integration expenses. The capital spending forecast remains $5.9 billion.

Alan B. Graf, Jr., EVP and CFO of FedEx Corp. added, "FedEx is implementing additional cost-reduction initiatives to mitigate the effects of macroeconomic uncertainty, including post-peak reductions to the global FedEx Express air network to better match capacity with demand...However, we are continuing to make strategic investments to improve our capabilities and efficiency, which we expect will drive long-term increases in earnings, margins, cash flows and returns."

These company further states that the forecasts assume moderate U.S. economic growth, the company's current fuel price expectations, no further weakening in international economic conditions from the company's current forecast and no additional adverse developments in international trade policies and relations.

FedEx, which is headquartered in Memphis, Tenn., provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. The company has annual revenues of $70 billion and a market capitalization of around $45 billion. The company employs more than 45,000 people offering its integrated business solutions through operating companies competing collectively and managed collaboratively, under the FedEx brand. The company's business segments include FedEx Express, TNT Express, FedEx Ground, FedEx Freight and FedEx Services.

FDX shares opened lower today at $153.30 (-$20.00, -11.54%) from yesterday's closing price of $173.30. The stock has traded today between $148.50 and $154.57/share and currently is trading at $149.79 (-$23.51, -$13.57%).


1) Stephen Hytha compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. He or members of his household own securities of the following companies mentioned in the article: None. He or members of his household are paid by the following companies mentioned in this article: None.
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