Will Express Unit Weakness Mar FedEx's (FDX) Earnings in Q2?

FedEx Corporation’s FDX Express segment, which accounts for more than 50% of the company’s total revenues and around 48% of its operating income, is expected to report dismal second-quarter fiscal 2020 results (ended Nov 30, 2019). (Read: Will the FedEx Stock Disappoint Again in Q2 Earnings?)

FedEx Express employs approximately 227,000 employees. Further, the company has approximately 100,000 drop-off locations (including FedEx Office stores and FedEx OnSite locations), 670 aircraft and approximately 90,000 vehicles globally.

Highlights of FedEx Express’ Q1 Performance

Quarterly revenues at FedEx Express (including TNT Express) declined 3% year over year to $8.95 billion thanks to slowdown in global economy and certain other factors. Operating income came in at $285 million, down 27% year over year. Moreover, operating margin slipped to 3.2% from 4.2% in the year-ago quarter.

Notably, the unit witnessed a decrease of 1.9% in revenues from international priority packages. Results were hurt by the weakness in global trade and industrial production. Freight revenues at the segment declined 6.7% to $1,741 million. The sluggish freight scenario in the United States partly contributed to the gloomy picture.

Weakness in FedEx Express Likely to Persist in Q2

Express segment’s fiscal second-quarter results are likely to reflect the impact of the trade dispute between the two of the world’s largest economies – the United States and China. Notably, Express segment is FedEx's largest revenue-generating unit.

Additionally, FedEx’s decision not to renew a shipping contract between its Express division and e-commerce giant Amazon AMZN might have dented the segment’s performance in the fiscal second quarter.

Mirroring the above headwinds, the Zacks Consensus Estimate for the fiscal second-quarter revenues at the FedEx Express unit stands at $9,251 million. In the year-ago quarter, the segment recorded revenues of $9,604 million.

Overall Earnings & Revenue Projections

For FedEx, which competes with United Parcel Service UPS in the package delivery space, the Zacks Consensus Estimate for second-quarter earnings is pegged at $2.84, indicating a decline of 29.5% from the year-ago quarter. For quarterly sales, the consensus mark of $17.57 billion suggests a decrease of 1.43% on a year-over-year basis.

Our Take

Factors like the ongoing trade uncertainty and sluggish industrial production are likely to hamper FedEx Express results in the quarter to be reported. This, in turn, is likely to weigh on this Zacks Rank #4 (Sell) company’s top and bottom lines.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Key Pick

Investors interested in the Zacks Transportation sector may consider Allegiant Travel Company ALGT, which sports a Zacks Rank #1. Shares of Allegiant have gained more than 17% over the past six months.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through Q3 2019, while the S&P 500 gained +39.6%, five of our strategies returned +51.8%, +57.5%, +96.9%, +119.0%, and even +158.9%.

This outperformance has not just been a recent phenomenon. From 2000 – Q3 2019, while the S&P averaged +5.6% per year, our top strategies averaged up to +54.1% per year.

See their latest picks free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Allegiant Travel Company (ALGT) : Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
United Parcel Service, Inc. (UPS) : Free Stock Analysis Report
 
FedEx Corporation (FDX) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research