Fedex Earnings Shed Positive Light on the Economic Recovery

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Investors are used to the no-guidance they get in the COVID environment. Fedex  (FDX) - Get Report shares skyrocketed after the company beat on revenue and earnings, handily, while offering no guidance. 

The stock rose more than 8% to $152 a share in post-market trading. It had risen 54% since March 23, the U.S. bear market low, but more importantly, 8.5% in the few weeks leading into earnings. 

The stock was trading at an elevated multiple of next year’s earnings, at 18 times. It’s 5-year average and high are 13 times and 17 times, respectively. Some analysts do point out that the stock, like many in the U.S. market, is trading on ”normalized” 2021 earnings, which makes Fedex look more attractively priced. The stock is still well below its all-time-high and the earnings per share beat was by 60%. 

And the magnitude of Fedex’s revenue beat is another example of the positive economic momentum seen since the re-openings and economic stimulus seen in the past few months, a trend that has validated strong risk sentiment in financial markets of late. 

Here were FedEx’s results against Wall Street expectations: 

  • Revenue: $17.4B v. $16.41B (result: -2.2% year-over-year) 
  • Adjusted operating margin: 5.2% v. 3.3% (down year-over-year from 9.3%) 
  • EPS: $2.53 Adjusted $1.58 (-49%) 

Fedex’s covid-related costs ate into profits more than its revenue decline did. Also on the cost side, high expenses related to a “surge” in residential deliveries drive operating expenses up, management said. 

The company also said of its overall strong results, "As a result of the strategic investments we have made to enhance our capabilities and efficiencies, FedEx is well positioned to support and benefit from the reopening of the global economy.”

Management did not offer any guidance, as virus cases have recently picked up and some re-openings in the U.S. have been halted, although Fedex is an extremely global business. 

For the current quarter, analysts are looking for further revenue and earnings contractions year-over-year, which could come in lighter than they did in the reported quarter. 

The company did say capital expenditures for fiscal year 2021 will be $4.9 billion, down from fiscal year 2020’s amount of $5.9 billion, as the demand environment looks uncertain and "to mitigate the impact of the pandemic.” 

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