FedEx Corp. is scheduled to report fiscal fourth-quarter results on Tuesday after the closing bell, but what the package delivery giant says about the future will be of much more interest to Wall Street than what it says about the past three months.
Investors have good reason to be worried about what’s coming for them in FedEx’s report.
Most analysts remain bullish on FedEx over the longer term, but they have become less so in recent months. Earnings and revenue estimates and stock price targets have been slashed on concerns over a slowdown in the global economy, particularly in China and Europe.
Those concerns are being exacerbated by the Trump administration’s contentious trade policy. FedEx has indicated that changes in U.S. policy have resulted in several governments, including China, the European Union and India, imposing retaliatory tariffs, which may reduce demand and hurt global trade and economic activity.
And although some analysts believe FedEx’s decision announced on June 7 to end its Express unit’s domestic contract with Amazon.com Inc. could help improve margins, as it allows the company to add higher-margin business-to-business customers, the need to do so is a little worrisome. Especially since FedEx’s declaration on June 10 of a quarterly dividend that was unchanged from a year ago, effectively snapped a 10-year streak of rising dividends.
Analyst Patrick Brown at Raymond James said the non-raise “could prove a telling sign,” given mounting macro uncertainty, sluggish volume trends and FedEx’s need to refresh its aircraft fleet and make ongoing e-commerce investments.
Brown kept his rating on FedEx at outperform, but lowered his stock price target to $200 from $215, cut his adjusted earnings-per-share estimate for fiscal 2020 to $15.50 from $17.10 and lowered his revenue forecast to $70.76 billion from $72.77 billion.
Among other investor concerns, The Wall Street Journal reported on Monday, citing people familiar with the matter, that FedEx was offering big discounts as it tries to get online merchants to switch over from rival United Parcel Service Inc.
And late Monday, FedEx filed suit against the U.S. Department of Commerce, saying the Export Administration Regulations (EAR) against FedEx violates common carriers’ rights, as it holds FedEx liable for shipments that violate the EAR without requiring evidence that FedEx had any knowledge of violations.
“FedEx is a transportation company, not a law enforcement agency,” the company said in a statement.
But perhaps the biggest reason for investors to worry is FedEx’s recent history of disappointing earnings reports. The stock has declined on the day after results were reported the past five quarters, by an average of 5.0% (median of 3.5%). Those disappointments have come despite earnings beats in three of the five quarters and revenue beats in four.
J.P. Morgan analyst Brian Ossenbeck suggested that as much as the latest quarter’s results, his key questions regarding the report will include 2020 earnings guidance and management comments on the “much anticipated” post-earnings conference call. He cut his stock price target to $184 from $202 and his 2020 adjusted EPS estimate to $15.32 from $16.79.
“Our lowered estimates and target price join the cavalcade of sell-side cuts over the last month that attempt to capture fundamental weakness and a string of strategic decisions within Express and Ground,” Ossenbeck wrote in a note to clients.
Don’t miss: FedEx just fired off a warnings investors may not be able to ignore.
Here’s what to expect:
Earnings: The average analyst EPS estimate for the quarter ended May, as compiled by FactSet, is $4.85, which is down from $5.91 in the same period a year ago. The FactSet consensus has declined steadily this year, from $4.93 at the end of March and $5.32 at the end of December.
For fiscal 2020, the FactSet EPS consensus is $16.23. That’s down from $16.82 at the end of March and $17.99 at the end of 2018.
Estimize, a crowdsourcing platform that gathers estimates from buy-side analysts, hedge-fund managers, company executives, academics and others, as well as from Wall Street analysts, has a fourth-quarter consensus EPS estimate of $4.85.
Revenue: The FactSet revenue consensus is $17.80 billion, up from $17.30 billion a year ago. That includes a $9.46 billion consensus for FedEx Express, a $5.20 billion consensus for FedEx Ground and a $2.01 billion estimate for FedEx Freight.
Estimize is projecting revenue of $17.91 billion.
For 2020, the FactSet consensus is for revenue of $72.13 billion.
Stock price: FedEx’s stock has lost 8.8% over the past three months, and 33.1% the past 12 months. That makes it the worst performing stock in the Dow Jones Transportation Average over the past year.
In comparison, shares of rival UPS have lost 11.2% the past 12 months, while the Dow transports have eased 3.8% and the Dow Jones Industrial Average has gained 9.9%.
Of the 27 analysts surveyed by FactSet, 19 rate the stock the equivalent of overweight, or buy, while 7 rate it the equivalent of hold and 1 rates it the equivalent of sell. That makes the average rating overweight.
The average stock price target is $195.79, which is about 25% above current levels, but down from the average target of $210.50 as of the end of March and $229.96 at the end of 2018.
