The package delivery company, FedEx Corporation (FDX), posted its second-quarter earnings on December 17, and the numbers were not that bad, though they clearly missed analysts’ expectations. FedEx is the second-largest package delivery company in the world and has its business diversified across a variety of logistic services, including ground transportation, freight shipping, airline shipping and printing and copying services. But the numbers were not bright as per the analysts’ speculating the stock – so what should investors do, buy and hold the stock or just short-sell the stock at this juncture. Let’s dive in to get to the answer.
The quarter numbers portray a mixed picture
CEO Frederick W. Smith stated, “FedEx posted strong results and a higher operating margin in the second quarter, with continued growth in volumes and base yields in each of our transportation segments…”
The company reported earnings that went up 36% from $1.57 a share reported a year ago to $2.14 a share during the quarter. However, analysts’ had forecast earnings to grow to $2.22 per share this quarter. Its quarterly revenue edged up to $11.94 billion, from $11.4 billion reported last year missing Wall Street estimate of $11.98 billion.
U.S. domestic package volume increased by 7% which included a 10% improvement in the U.S. overnight shipping. However, the revenue per package fell 2% due to decrease in fuel surcharge and lower weight.
International package volumes rose 5% during the quarter, while international priority package volume increased about 1% year over year. The international revenue per package ended flat in the quarter, due to higher rates which were partially offset by currency fluctuations and lower fuel surcharges.
Long-term story looks bright
The shipping seems to be gearing up to ship a record number of packages during this holiday season and does not want to repeat the mistakes it committed in the holiday season last year. To avoid the logistic glitches it did face last year in the holiday season, additional trucks, workers and more than 600 planes have been added to the crew to ensure speedy and timely delivery of gift items.
As the scenario looks brighter ahead for FedEx which is a bellwether in the package delivery industry, the company has reaffirmed its 2015 earnings guidance to $8.50-$9.00 per share assuming continued moderate growth in economy and a modest net benefit from fuel prices. Capital spending for the fiscal year is expected to be around $4.2 billion.
Still a buy stock
The holiday season in undoubtedly the busiest time for companies like FedEx. Their CEO stated during the earnings call – “As we enter the final stages of this year's peak shipping season, I'd like to thank the more than 300,000 dedicated team members around the world for again delivering outstanding service to FedEx customers during the holidays…”
Also in the same week as the earnings, FedEx announced the two major acquistions: the first was Genco (GNCC, Financial), a third-party logistics company which had revenue of $1.6 billion in the last year and the second one being Bongo International which is a service provider enabling international ecommerce orders and shipments. Hopefully, these two recent acquisitions would start showing their color in the upcoming quarters as they get integrated into the e-commerce side of business. As low fuel costs acts as a tailwind, investors are expected to benefit from lower costs at FedEx in the next year and beyond.
Final word
FedEx is facing short-term hiccups, which should possibly disappear sooner the better. Also the company is going for acquisitions in the spree to win more customers globally. Such efforts might help FedEx to gain traction in the industry and aid in maintaining its top and bottom line in the coming quarters.
