Peak Season Appears Robust For FedEx As Annual Guidance Is Maintained

Following the release of fiscal second-quarter 2017 financial results by FedEx Corporation FDX, Oppenheimer said the company's peak season appears robust, with service levels elevated. The firm said it is encouraged that the company maintained its annual earnings per share guidance of $11.85–$12.35, which was increased from $11.75–$12.25 in the fiscal first-quarter results.

Ground Segment OM Weighing On Bottom Line

Analyst Scott Schneeberger attributed the fiscal second-quarter earnings miss relative to his estimate and the consensus to lower than expected ground segment operating margin, due to elevated rent, depreciation and staffing expenses from its massive expansion in calendar year 2016.

Headwinds To Alleviate After Q3

However, Oppenheimer believes the heavy investment in calendar year 2016 to benefit growth and margin expansion over the coming years. The firm expects the headwinds to have an impact once again in the company's fiscal third quarter before significantly alleviating.

Giving a revenue breakdown of FedEx's business segments, Oppenheimer said:

• Express accounted for about 58 percent of the company's revenues, including the recently acquired TNT Express segments. The firm noted that international export volume grew for the first time in over two years. The company also mentioned of a significant customer volume being pushed from its fiscal second quarter to third quarter.
• Ground accounted for 30 percent of its revenues, with the segment's revenues and operating margins falling short of its estimates.
• Freight accounted for 11 percent of its revenues or $1.6 billion, in line with the firm's estimate and ringing in 3 percent year-over-year growth due to growth in the LTL daily shipments, partly offset by lower weight per revenue. However, adjusted operating profit was shy of estimates.

Maintaining Estimates, Rating And Price Target

Oppenheimer maintains its fiscal year and calendar year 2017 estimates and its 2018–2020 adjusted earnings per share estimates. As such, Oppenheimer maintains its Outperform rating and a 12–18-month price target of $210.

In pre-market trading, shares of FedEx were slipping 2.03 percent to $194.70, and at last check, shares were down 2.62 percent at $193.54.