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FedEx Investors Deliver a Lower Stock Price as Package-Delivery Giant Reports Q2 Profit Drop

Several factors hurt the results, including a weak global economy, higher costs at FedEx Ground, less-profitable services in the mix, and more.
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FedEx  (FDX) - Get FedEx Corporation Report shares fell after hours on Tuesday after the Memphis package-delivery giant reported fiscal-second-quarter net income fell 39% on 2.8% lower revenue.

In the quarter ended Nov. 30, FedEx earned $2.13 a share compared with $3.51 in the year-earlier quarter. The latest adjusted earnings were $2.51. Revenue slipped to $17.32 billion from $17.82 billion.

A survey of analysts by FactSet produced consensus estimates of net income of $2.60 a share, or an adjusted $2.78, on revenue of $17.6 billion.

The second-quarter earnings reflect two charges of 19 cents a share each: for expense related to integrating TNT Express and for aircraft-asset impairment.

"Operating results declined due to weak global economic conditions, increased FedEx Ground costs from expanded service offerings, the loss of business from a large customer, a continuing mix shift to lower-yielding services and a more competitive pricing environment," the company said in a statement. 

"In addition, the later timing of the Thanksgiving holiday resulted in the shifting of Cyber Week into December. ..." 

FedEx now forecasts fiscal 2020 earnings of $9.10 to $10.35 a share excluding the impact of a year-end accounting adjustment for a retirement plan. The company said it could not estimate the amount of that adjustment. 

And it said earnings should range $10.25 to $11.50 a share excluding that adjustment and excluding TNT Express integration expenses and aircraft impairment charges.

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The FactSet survey was looking for $12.09. In its Q1 release, FedEx had estimated the year's profit adjusted for both the accounting adjustment and the integration and asset-impairment costs at $11 to $13 a share.

At last check FedEx shares were trading off 6.2% at $153.19.

Before the earnings report, J.P. Morgan analyst Brian Ossenbeck raised his price target on FedEx to $154 a share from $140. He affirmed a neutral rating on the stock.

On Monday the Wall Street Journal reported that Amazon  (AMZN) - Get Inc. Report blocked its third-party merchants from using the FedEx Ground service to deliver to Amazon Prime members, saying that the division's delivery performance was lagging.

An Amazon spokesman told the paper that the Seattle online retail giant would lift the ban once FedEx Ground service improves.

Addressing the matter before FedEx's earnings report, Credit Suisse analyst Allison Landry said in a note, "We cannot help but wonder whether the news is symptomatic of broader delivery issues that AMZN’s own network might be facing as we approach the final days of what is an already compressed peak season. ..." 

Landry rates FedEx outperform and has a $168 target on the stock.