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Will High Operating Expenses Mar FedEx’s (FDX) Q1 Earnings?


FedEx Corporation FDX is set to release first-quarter fiscal 2019 results after the closing bell on Sep 17.

In the fourth quarter of fiscal 2018, the company delivered a positive earnings surprise of 3.3%. Earnings (excluding $1.76 from non-recurring items) of $5.91 per share surpassed the Zacks Consensus Estimate of $5.72. However, the fourth-quarter earnings beat failed to translate into any strength for its stock, as evident from its decline of 4% in the last three months.

Three- Month Price Performance

With FedEx making significant investments, the bottom line is likely to be under pressure in the soon-to-be-reported quarter. In fact, the stock might shed further value on dismal results.

Moreover, the stock has witnessed the Zacks Consensus Estimate for fiscal first-quarter being revised 1.8% downward over the last 90 days.

Our quantitative model too does not conclusively point at an earnings beat in the quarter to be reported. Here's why:

FedEx does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — for increasing the odds of an earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: FedEx has an Earnings ESP of -0.15%. This is because the Most Accurate Estimate is pegged at $3.77 per share, lower than the Zacks Consensus Estimate of $3.78.

Zacks Rank: FedEx has a Zacks Rank #3. However, that alone is not sufficient to secure an earnings beat. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Factors Likely at Play

We expect high costs to hurt FedEx's bottom line in the first quarter of fiscal 2019. With the company investing significantly to upgrade facilities at its key divisions, capital expenses are on an upswing. Additionally, integration expenses pertaining to TNT Express are pushing up costs.

We also remain concerned about the escalating trade war tensions between China and the United States as FedEx has Chinese exposure. In January 2018, FedEx had opened a hub in Shanghai to strengthen its presence in China. The company’s high-debt levels further add to its woes.

However, solid growth of e-commerce is anticipated to boost the top line in the quarter to be reported. Notably, the Zacks Consensus Estimate for revenues at the FedEx Express (including TNT Express) division stands at $9,245 million, higher than $8,652 million reported a year ago. For Ground and Freight revenues, the Zacks Consensus Estimate is pegged at $4,742 million and $1,900 million above the year-ago figures of $4,639 and $1,752 million, respectively.

Also, we expect commentary regarding the fast approaching holiday season on the first-quarter conference call.

FedEx Corporation Price and EPS Surprise

FedEx Corporation Price and EPS Surprise | FedEx Corporation Quote

Key Picks

Investors interested in the broader Transportation sector may consider the following stocks with the right combination of elements to deliver an earnings beat in their next releases:

CSX Corporation CSX has an Earnings ESP of +5.80% and a Zacks Rank of 1.

Delta Air Lines, Inc. DAL has an Earnings ESP of +3.08% and a Zacks Rank #3.

Canadian Pacific Railway Limited CP has an Earnings ESP of +5.07% and a Zacks Rank of 3.

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