On Tuesday afternoon, FedEx (FDX) - Get Report reported its second-quarter earnings, but it wasn't the special delivery analysts and investors had been expecting.

For the quarter, earnings were $2.80 per share, 11 cents lower than the $2.91 per share Wall Street had been expecting. And although the company met expectations when it came to revenue, with $14.91 billion -- a 19% year-over-year increase -- FedEx's operating margin (GAAP) fell from 9.1% to 7.8%.

FedEx's shares dropped more than 3% on Wednesday. 

Despite the second-quarter setbacks, FedEx is a strong company poised for more growth. Fedex stock is up more than 30% year to date. 

Thanks to higher volume fueled by the rise of e-commerce, FedEx's Ground and Freight segments saw a year-over-year boost in revenue.

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Earlier this year, Fedex acquired TNT Express to boost its business in Europe and beyond, where the company sees untapped potential. The TNT Express purchase, which cost FedEx nearly $5 billion, generated $1.9 billion in revenue during the second quarter. Fedex generated about 45% of its nearly $15 billion in revenue via international deliveries and that could increase as emerging markets grow.

Moreover, FedEx said in its earnings report that it is expecting this holiday season to beat records, with 10% more volume than the company shipped last year. Multiple days have already exceeded more than twice last year's daily average.

There are a few potential challenges in 2017.

Amazon has been increasing its delivery services. That would cut significantly into FedEx's business, a cut that would be particularly painful because FedEx had from the rise in e-commerce. But this isn't going to happen overnight, and in the medium term, FedEx expects to keep meeting or exceeding its volume targets.

FedEx is one of the best-performing stocks in the transports industry. It's the world's third-largest courier service, ranking behind only United Parcel Service and Deutsche Post. As more people choose to shop online, the company could witness even more growth.

Although there will be headwinds for FedEx in the future, this stock still stands to deliver profits to its investors.


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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.