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FedEx Shares Slump After COVID Uncertainty Clouds Solid Q2 Profits

FedEx said rising coronavirus infections have clouded its near-term outlook even as it posted stronger-than-expected second quarter earnings.

FedEx Corp.  (FDX) - Get FedEx Corporation Report shares slumped lower Friday after the world's biggest package delivery group posted stronger-than-expected second quarter earnings but held back on providing near-term profit guidance.

FedEx said adjusted earnings for the three months ending in November, the group's fiscal first quarter, were pegged at $4.83 per share, nearly double the same period last year and well ahead of the Street consensus forecast of $4.01 per share. Group revenues, FedEx said, rose 19% to $20.6 billion, thanks in part to big gains in it international shipping division that offset disappointing margins in its ground business.

FedEx said it still expects earnings growth over the second half of its fiscal year, as demand improves alongside the broader global economy, but cautioned that the recent spike in coronavirus cases clouded its ability to publish a detailed profit forecast.

"While current business demand continued to improve in the second quarter, the current rise in COVID-19 cases globally adds significant uncertainty to demand forecast as well as operating costs and clouds our ability to forecast full year earnings," CFO Mike Lenz told investors on a conference call late Thursday. "However, based on the current trends in our business, we anticipate increased demand to result in higher year-over-year revenue and operating income at FedEx Ground and FedEx Express for the remainder of fiscal 2021."

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FedEx shares were marked 4% lower in early trading Friday to change hands at $280.50 each, a move that still leaves the stock with a six month gain of more than 100%.

Ground volumes for FedEx rose 29% from last year, the company said, while yields increased by an impressive 7%, but increasing costs, including fuel, clipped margins for the division to 7.5%, down from 11.8% in the previous quarter.

"FedEx results were better than anticipated on a consolidated basis, but with underlying trends that we suspect could cause investors to re-examine the merits of the recent rerating in valuation," said BMO Capital Markets analyst Fadi Chamoun, who carries a $305 price target with a 'market perform' rating on the stock. 

"Ground segment results were below expectations due to the lack of operating leverage despite the strong demand, while the earnings beat appears to be a result of strong cyclical tailwinds in Express, some of which were a function of the pandemic-driven shortages in air freight capacity," he added.