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A slowdown in the U.S. economy and high inflation have hit the freight industry, while parcel service giants like FedEx Corporation (NYSE: FDX ) face a slump in demand after a pandemic-fueled delivery boom cools. While external conditions continue to be challenging, FedEx has begun restructuring the organization, focusing on aggressive cost reduction.
In general, experts are optimistic about the outlook for the company’s stock this year, although consensus estimates show only modest gains. The stock is a favorite among income investors, thanks to regular dividend increases and good yields. However, FDX’s performance ahead of earnings has not been very encouraging.
Evaluation
Despite the slow pullback from the 2021 peak, the stock is almost at par. Along with the weak earnings forecast, the current valuation should be cautious. Markets will be following this week’s earnings, looking for clues about the company’s direction. So, it would be a good idea to hold off on buying/selling until now.
FedEx Corporation Q2 2023 Earnings Call Transcript
The economic and geopolitical background is not favorable for FedEx – the Russia-Ukraine war continues to disrupt the movement of goods in the region while muted demand weighs on volumes in Asia, prompting management to reduce capacity. Meanwhile, recent improvements are a bright spot as the trend is expected to continue. Earlier, the company had raised package delivery rates to revive margins.
Cost reduction
Falling sales and softening profits made the company extend the cost-cutting drive it had started last year. These measures include reducing capacity and closing certain offices, particularly focusing on the Express division which has been affected by market headwinds. When the company releases its third-quarter results on Thursday, after official trading hours, the market will be looking for a drop in adjusted earnings to $2.71 per share. At projections reflect a roughly 3.6% decrease in revenue to $22.79 billion.
From the FedEx Q2 2023 earnings call:
“When we look at the back half, the service improvement has been a good momentum for our sales team. In addition, we have a strong pipeline that is in line with our strategy, which includes targeting the small and medium segment and Europe. In Q4, we will have an impact the beginning of the war in Ukraine as well as the air integration disruptions we’re experiencing in that region. As a result, our year-over-year volume comps will increase as we move through the back half of this fiscal year.
Finance
The company ended the first half of fiscal 2023 on a positive note, reporting bigger-than-expected earnings for the second quarter, which marked its second consecutive quarter after two consecutive losses. Net profit, adjusted for special items, plunged 34% year-over-year to $3.18 per share. At $22.8 billion, second-quarter profits fell 3%. A contraction in the core Express This part is more than offset by the growth soil and Transport goods division.
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FedEx shares declined on Monday and traded below $200 during the session, extending recent weakness. It has lost about 6% over the past thirty days.
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