Earnings Preview: FedEx (FDX) likely to report higher revenue and profit for Q3

FedEx Corporation (NYSE: FDX) delivered positive earnings performance and margin expansion in the first half of fiscal 2024, despite lower revenues. The cargo giant has been on a path of transformation, to become a more efficient and profitable business. The company is all set to report third-quarter results next week.  

FedEx raised its quarterly dividend regularly in recent years and currently offers a better-than-average yield of about 2%. The stock is trading close to where it was about six months ago, after losing momentum in the post-earnings selloff a few months ago. It has gained an impressive 70% in the past one-and-half years, and mostly outperformed arch-rival UPS during that period.  

Q3 Report Due

Third-quarter results are expected to come on Thursday, March 21, at 4:05 p.m. ET. As per the average estimate, revenues are expected to be $22.05 billion in the February quarter, which is broadly unchanged year-over-year and sequentially. Meanwhile, analysts predict a 3.5% increase in Q3 adjusted earnings to $3.53 per share.

In a sign that the strain on the top line would continue in the near term, FedEx executives recently forecast a low-single-digit percentage decline in revenues for fiscal 2024. Meanwhile, they reaffirmed full-year earnings per share guidance in the range of $17 to $18.50, amid continued margin expansion.

From FedEx’s Q2 earnings call:

“The reaffirmation of our earnings outlook despite the weaker demand environment reflects the continued benefits of our transformation. We’ll continue to closely monitor the global demand environment and other key factors including inventory restocking, inflation, and e-commerce trends, which inform our view of overall expected performance. With regard to our third-quarter expectations, as we’ve shared previously, we anticipate our typical seasonality, which implies a lighter quarter sequentially for earnings.”

Facelift

The FedEx management has been working to enhance operational efficiency through initiatives like aggressive cost-cutting and rightsizing the company’s logistics network. Those efforts complement its restructuring program focused on consolidating operating segments into a single organization called Federal Express Corporation. Reducing capital expenditure is a key priority for FedEx, but the company continues investing in advanced technology to become a data-driven, digital-first organization.

Meanwhile, the cargo industry is becoming increasingly competitive, which will be the main challenge facing companies like FedEx and UPS in the coming years. Amazon, which was once a top customer of FedEx, is building its own logistic network and that can put the latter’s market share under pressure. Also, smaller players in the industry are expanding their footprint through innovation and advanced technology.  

Mixed Q2

In the second quarter, FedEx’s earnings fell short of expectations after beating for five straight quarters. At $3.99 per share, adjusted profit was up 25% year-over-year in Q2. Revenues decreased 3% from last year to $22.2 billion, mainly due to a 6% drop in revenues of the core Express division. Meanwhile, the Ground segment registered a modest revenue growth, continuing the recent trend.

FDX has stayed above its 52-week average since the beginning of March. The stock traded almost flat on Thursday afternoon, after maintaining an uptrend in the previous sessions.