FedEx (FDX) To Report Q3 Earnings: What's In The Cards?

FedEx Corporation (NYSE:FDX) is set to release third-quarter fiscal 2019 results, after the closing bell on Mar 19.

In the last reported quarter, the company witnessed a negative earnings surprise of 0.5%. However, it delivered better-than-expected revenues. Moreover, both metrics improved significantly on a year-over-year basis. Results were aided by growth across all its transportation segments.

The company is likely to suffer a similar fate in the fiscal third quarter as well with the Zacks Consensus Estimate for the period’s earnings being revised 18.6% downward in the last 60 days.

Factors Likely at Play

Akin to the last few quarters, the company’s bottom-line growth is likely to be partly affected by TNT Express integration costs. Moreover, with FedEx investing significantly in facilities’ upgrade at its key divisions, capital expenses are on the rise. High capital expenses might also mar earnings in the quarter.

Weakness in the European economy is expected to impact the overall results. Similar to the fiscal second quarter, Express package volumes are anticipated to be lower-than-expected due to the sluggish European economy. The Zacks Consensus Estimate for fiscal third quarter’s average daily package volumes is 2.6% lower than that reported in the fiscal second quarter.

A slowdown in global trade has been hindering growth at the company’s Express segment, the major revenue driver, and the situation is likely to be no different this soon-to-be-reported quarter. Notably, the consensus mark for Express revenues in the quarter is pegged at $9,496 million, lower than $9,604 million reported in the previous quarter.

However, the company has been making efforts to mitigate the negativity through strategic cost management. Some of the cost-reduction initiatives are contraction in capacity, especially in the international airline network and cutbacks in hiring and staff functions. These measures are anticipated to partly offset the adversities.

Additionally, robust e-commerce growth has been aiding the company immensely for a while now. This tailwind is expected to boost the company’s top line. Notably, the Zacks Consensus Estimate for revenues at the Ground unit in the fiscal third quarter is pegged at $5370 million, above the fiscal second quarter’s reported figure of $5,142 million.

FedEx Corporation Price and EPS Surprise

FedEx Corporation Price and EPS Surprise | FedEx Corporation Quote

Earnings Whispers

Our proven model does not conclusively show that FedEx is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as elaborated below.

Earnings ESP: FedEx has an Earnings ESP of -6.70%. This is because the Most Accurate Estimate is pegged at $2.89, lower than the Zacks Consensus Estimate of $3.10. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: FedEx has a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, the company requires a positive ESP to be confident about a likely earnings surprise. Thus, this combination leaves surprise prediction inconclusive for the stock.

We caution against the Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Investors interested in the broader Transportation sector may consider the following stocks with the right combination of elements to beat on earnings in the upcoming releases:

GATX Corporation (NYSE:GATX) has an Earnings ESP of +2.33% and a Zacks Rank of 3.

Hawaiian Holdings, Inc. (NASDAQ:HA) is a #3 Ranked player and has an Earnings ESP of +8.43%.

Norfolk Southern Corporation (NYSE:NSC) has a Zacks Rank #2 and an Earnings ESP of +2.20%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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