FedEx First Quarter Earnings Preview: What Wall Street's Saying

NEW YORK (TheStreet) - FedEx (FDX) shares have risen a lofty 40% over the past 12 months versus its package delivery rival UPS (UPS) , which has gained 9.1%. It has also outperformed the S&P 500, which is up 17.5% in the same time period.

The Memphis, Tenn.-based delivery and logistics company reports first quarter earnings on Wednesday, where it will update investors on whether it is on track to meet the profit forecast it set for 2015.

Analysts, on average, expect FedEx to report fiscal first-quarter earnings of $1.96 a share, up 28% from last year's quarter. Revenue is expected to rise 5% to $11.48 billion, according to Thomson Reuters.

FedEx said during its fourth-quarter earnings in June that it expects fiscal 2015 earnings between $8.50 and $9 a share compared to 2014, when it earned $6.75 a share. The outlook assumed "no net year-over-year fuel impact and continued moderate economic growth," according to the company's earnings statement. It also said that capital spending for the year is expected to rise to approximately $4.2 billion, which includes "planned aircraft deliveries to support the company's fleet modernization program and continued expansion of the FedEx Ground network."

"With continued modest economic improvement, our results in fiscal 2015 should benefit from base performance improvement and ongoing execution of our profit improvement initiatives at FedEx Express, continued profitable growth at FedEx Ground and FedEx Freight, and our share repurchase program," Alan Graf, Jr., FedEx's chief financial officer said in the earnings release.

FedEx shares dropped 0.19% to $153.75 on Tuesday. Here's what analysts are saying about FedEx leading up to earnings:

Scott Schneeberger, Oppenehimer (Outperform; price target upped by $4 to $172)

We're increasing F1Q15E/FY15E/FY16E EPS in anticipation of solid F1Q15 results. We view favorable drivers to include: 1) B2C tailwinds via e-commerce growth in Ground; 2) improving B2B Ground package/Freight volume growth supported by expanding manufacturing activity/rebounding economic climate; and 3) continued margin expansion in Express via improving global air freight volumes/mitigated "trade-down"/fuel surcharge tailwinds/internal efficiency progression. Furthermore, we view FDX potentially having completed its existing share repurchase authorization (5.3M shares at 5/31/14) and announcing incremental planned activity. Modeling a flat forward share count, this could represent upside to our FY15E-FY16E EPS if announced/executed. Drawn to FDX's multi-year profit improvement story, we're introducing FY17E EPS and increasing our target from $168 to $172.

In light of a more favorable fuel price backdrop than we initially anticipated, and to a lesser extent, what appears to be a pick-up in the int'l airfreight market, we have raised our 1Q15 EPS estimate to $2.01 (from $1.92). We note that this is above the current consensus of $1.96. However, the market already appears to be reflecting a potential beat with the stock up 6% since its recent trough on August 6th.

Mark McVicar, Nomura Securities (Neutral; $145 PT)

For 1Q, our EPS forecast of USD 1.92 compares with BBG consensus of USD 1.96 and USD 1.53 in 1Q FY14, representing some 25% EPS growth on our numbers and 28% on consensus. Within the mix, we expect the greatest improvement to come from the Express division, where a combination of modest volume growth, yield improvement and the benefits of the restructuring of the last two years to begin to show through in a margin uplift of almost 100bp. We also expect useful but steadier progress from the Ground and Freight divisions as they too benefit from better volumes and pricing and push margins modestly higher.

"We rate FEDEX CORP (FDX) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Powered by its strong earnings growth of 158.94% and other important driving factors, this stock has surged by 38.34% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, FDX should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • FEDEX CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, FEDEX CORP increased its bottom line by earning $6.79 versus $4.92 in the prior year. This year, the market expects an improvement in earnings ($8.80 versus $6.79).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Air Freight & Logistics industry. The net income increased by 140.9% when compared to the same quarter one year prior, rising from $303.00 million to $730.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 4.7%. Since the same quarter one year prior, revenues slightly increased by 3.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The current debt-to-equity ratio, 0.31, is low and is below the industry average, implying that there has been successful management of debt levels. To add to this, FDX has a quick ratio of 1.58, which demonstrates the ability of the company to cover short-term liquidity needs.

--Written by Laurie Kulikowski in New York.

Follow @LKulikowski

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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