FedEx Down 2 Percent After Earnings and Guidance; Hikes Shipping Rates
FedEx (NYSE: FDX) gapped lower on Tuesday morning after the company released its fiscal first-quarter earnings and provided updated guidance below Street estimates. At last check, FDX was down around two percent to $87.50. The stock has been underperforming the market in 2012, notching a gain of just under five percent.
The stock continues to trade well below pre-financial crisis levels and has been unable to break above the mid-$90 level in recent years despite testing that area multiple times. The company issued a profit warning two weeks ago, citing economic softness, which was impacting growth in its FedEx Express unit.
FedEx reported net income of $459 million or $1.45 per share, compared to $464 million or $1.46 per share in the year ago period. This came in ahead of Wall Street analysts' consensus EPS estimates of $1.40 for the first-quarter.
Total revenues at the company were up three percent to $10.79 billion versus $10.52 billion last year. This came in slightly ahead of consensus revenue expectations of $10.70 billion.
The company announced that it will be raising rates on FedEx Express shipping by 3.9 percent for U.S. domestic, U.S. export, and U.S. import services beginning on January 7, 2013. FedEx Freight increased rates by 6.9 percent on July 9, 2012. The rate increase is designed to offset slowing revenue growth within the FedEx Express unit on account of sluggish economic conditions in the U.S.
"As we announced on September 4, weakness in the global economy constrained revenue growth at FedEx Express during our first quarter and affected our earnings," Chairman, President and CEO Frederick Smith said in a statement.
For the first-quarter, FedEx reported that its operating margins had slipped from seven percent to 6.9 percent.
Looking ahead to the second-quarter, the company said that it expects earnings per share between $1.30 and $1.45. This is well below analyst's consensus of $1.60.
For fiscal 2013, the company lowered its earnings guidance to a range of $6.20 to $6.60 per share from $6.90 to $7.40. Currently, analysts are projecting that FedEx will report EPS of $7.04 for fiscal 2013. The company's new guidance range is well below current expectations.
The losses in the stock have been contained on Tuesday as the company's earlier profit warning braced the Street for Tuesday's disappointing results. From a technical perspective, there is little to suggest that the stock is setting up to move higher in the near-term, and the company's disappointing forward outlook could weigh on the shares going forward.
The announcement of a another round of quantitative easing by the Federal Reserve last week could also put upward pressure on FedEx's energy costs. From a valuation perspective, however, FDX does not look expensive. The stock currently trades at a trailing P/E of 13.65, a forward P/E of 10.60, and a PEG ratio of just 0.94. Analysts are projecting that FedEx will report a 6.10 percent increase in sales for 2013.
The shares are also currently yielding around 0.60 percent and the blue-chip Dow component has a history of raising its dividend.
The implications of FedEx's weak second-quarter guidance, slashed 2013 view, and downbeat commentary should be noted by investors. The results from FedEx highlight the continued headwinds faced by cyclical companies which are dependent on economic growth both domestically and internationally. The stock is seen as a major bellwether for the health of the economy, and the company's outlook suggests that conditions remain difficult.
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