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FedEx (FDX) Stock Up on Q2 Earnings Beat and Rosy FY22 View

Rising segmental revenues & increased yearly guidance boost FedEx's (FDX) second-quarter fiscal 2022 results.

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This story originally appeared on Zacks

FedEx Corporation’s FDX second-quarter fiscal 2022 (ended Nov 30, 2021) earnings (excluding 95 cents from non-recurring items) of $4.83 per share beat the Zacks Consensus Estimate of $4.23. The bottom line was flat on a year-over-year basis.

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Quarterly revenues for the quarter came in at $23,474 million. The top line outperformed the Zacks Consensus Estimate of $22,531.5 million and increased 14.2% year over year, with revenues increasing at all its key segments.

The earnings guidance for fiscal 2022 has also been increased, driven by strong demand and a favorable pricing scenario. For fiscal 2022, FedEx now anticipates earnings per share — before the year-end MTM retirement plan accounting adjustment and exclusion of the estimated TNT Express integration expenses and costs associated with business realignment activities — in the band of $20.5-$21.50 (the earlier view was $19.75-$21.00). The midpoint of the revised guided range is $21.00, up from the Zacks Consensus Estimate of $19.49.

The outperformance for the fiscal second quarter and increased earnings per share view pleased investors. Consequently, the stock gained in after-market trading on Dec 16.

FedEx Corporation Price, Consensus and EPS Surprise

FedEx Corporation Price, Consensus and EPS Surprise

FedEx Corporation price-consensus-eps-surprise-chart | FedEx Corporation Quote

Operating income (on an adjusted basis) inched up 11.3% year over year to $1.68 billion for the reported quarter, driven by strong revenue growth, effective cost-management strategies and labor availability. Yet, operating margin (adjusted) dipped to 7.1% from 7.4% in the year-ago period.

Segmental Performance

Quarterly revenues at FedEx Express (including TNT Express) improved 12% from the prior-year quarter to $11,605 million owing to higher revenue per package and increased international and U.S. domestic package yield. Segmental operating income increased 5% year over year to $949 million. Segmental operating results were driven by higher yields and FedEx International Priority volume growth.

FedEx Ground revenues increased 13% year over year to $8,264 million for the period under consideration, owing to higher revenue per package, driven by service mix and pricing initiatives. Operating income came in at $481 million, decreasing 13% year over year. Segmental operating results were hurt by increased purchased transportation costs, higher wage rates and network inefficiencies due to staffing shortages. Operating results were also negatively affected by higher expansion-related costs.

FedEx Freight revenues climbed 17% year over year to $2,272 million, driven by higher revenue per shipment and increased average daily shipments. The segment’s operating income ascended 33% from the year-ago quarter to $334 million, courtesy of an intensified focus on revenue qualitative and profitable growth. Average daily shipments in the unit and revenue per shipment increased 3% and 14%, respectively.

Capital expenditures for the quarter increased 12% from the prior-year period to $1.57 billion due to the company’s increased spending on package handling equipment, information technology and aircraft.

New Buyback Plan Cleared

FedEx’s board of directors has authorized a new $5-billion share repurchase program. The new program is in addition to the buyback program announced in 2016, authorizing the repurchase of up to 25 million shares, of which 2.3 million shares remain available for repurchase. Under the share repurchases program, the company intends to enter into a $1.5-billion share buyback program that will be completed by the end of the fiscal year.

Liquidity

FedEx exited second-quarter fiscal 2022 with a cash and cash equivalent balance of $6,833 million compared with $7,087 million recorded as of May 31, 2021. Long-term debt (less current portion) is pegged at $20,386 million compared with $20,733 million recorded at the end of the previous quarter.

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For fiscal 2022, FedEx anticipates earnings per share in the range of $18.25-$19.25 (earlier guidance: $18.25-$19.50) before the year-end MTM retirement plan accounting adjustments.

The effective tax rate, before the year-end MTM retirement plan accounting adjustment, is still expected to be 24% in fiscal 2022.

Capital expenditures are still predicted to be $7.2 billion for fiscal 2022, indicating a rise from $5.88 billion incurred in fiscal 2021.

Cash flow (on an adjusted basis) is expected to be $3 billion.

Zacks Rank & Stocks to Consider

FedEx currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the broader Zacks Transportation sector include Knight-Swift Transportation Holdings Inc. (KNX), Landstar System, Inc. (LSTR) and C.H. Robinson Worldwide, Inc. (CHRW).

The long-term (three to five years) expected earnings per share growth rate for Knight-Swift is pegged at 15%. KNX is benefiting from an improvement in the adjusted operating ratio. The adjusted operating ratio improved to 82.8% for the first nine months of 2021 compared with 86.6% in the year-ago period. For third-quarter 2021, the metric improved to 81.3% from 83.9% a year ago.  

The uptick in the adjusted operating ratio is primarily driven by increased revenues in the Trucking, Logistics and Intermodal segments. Lower the value of the metric, the better. The stock has surged 41.1% in the past year. Knight-Swift presently carries a Zacks Rank #2 (Buy).

The long-term expected growth rate for Landstar is pegged at 12%. LSTR is benefiting from a gradual recovery in the economy and freight market conditions in the United States.

LSTR’s top and bottom lines increased substantially in each quarter from the third quarter of 2020, owing to robust revenues generated from the primary segment — truck transportation. The stock has returned 29.3% in the past year. Landstar also sports a Zacks Rank #1.

The long-term expected earnings per share growth rate for C.H. Robinson is pegged at 9%. CHRW is benefiting from higher pricing and volumes across most of its service lines. Total revenues rallied 42.4% year over year for the first nine months of 2021, with higher revenues across all segments.

CHRW’s measures to reward shareholders are encouraging. Driven by the tailwinds, the stock has increased 12.7% in the past year. C.H. Robinson currently sports a Zacks Rank #1.



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