FedEx Delivers Strong Earnings, But Coronavirus Could Be Trouble Ahead

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Investors looked past two clear negatives on FedEx’s  (FEDEX)  earnings print out Tuesday afternoon. 

The stock rose 4.25% to $99 a share Tuesday in postmarked trading, after having risen 4.94% in regular trading hours. 

Earnings per share came in at $1.41, in line with Wall Street’s estimates of $1.41. Revenue of $17.5 billion beat analysts expectations of $16.8 billion. 

Management was quick to note that the coronavirus was a positive for the results, as less air travel meant higher demand for one of its ground segments. "The COVID-19 pandemic is having a significant impact around the world,” said CEO Frederick Smith. “We continue to deliver for our customers and are ready to support increased demand for our International Express export services due to the significant reductions in intercontinental air capacity.” 

But there were two negatives analyst are likely to point to as reasons for caution. 

If revenue beat estimates and earnings per share were in line, it’s likely that higher-than-expected costs were a part of the equation. Indeed, the operating margin came in at an adjusted 2.8%, missing estimates of 2.9%. Management did say it saw an elevated cost. The company noted "increased FedEx Ground costs from expanded service offerings.” Plus, the company relied on “lower yielding" services, meaning lower services, while volume growth took care of revenue. 

Also, the company withdrew guidance because of uncertainty regarding the coronavirus. The outbreak was a quarterly positive for the company, but may not be going forward. The company didn’t say what the specific impact will be, but it is conceivable that delivery workers may stay at home. 

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