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Mediocre FedEx Earnings a Sign of What’s to Come?

Finance

Mediocre FedEx Earnings a Sign of What’s to Come? image 210613 PC clarkThe business of freight is always a benchmark.

FedEx Corporation (FDX) reported its fiscal fourth-quarter numbers that can only be described as mediocre. The stock went up on the news.

The company reported that its fourth-quarter sales grew four percent to $11.4 million, while earnings dropped 45% to $303 million, compared to its $550 million a year ago. Earnings per share fell similarly from $1.73 to $0.95.

FedEx noted that international customers were opting for less premium freight services, which is what affected the company’s earnings. The company is retiring older planes and undertaking voluntary employee buyouts, which added to costs.

FedEx’s earnings results are emblematic of the softness in the eurozone marketplace. The company increased its adjusted earnings forecast for fiscal 2014, but it was a little bit short of existing consensus.

The company’s share price went up on its earnings release day, when the broader stock market finished a full one percent lower. United Parcel Service, Inc. (UPS) reports in another month.

FedEx’s four-percent revenue gain wasn’t bad for such a large, mature enterprise. Noticeable in the company’s numbers were a 10% reduction in fuel costs and a 25% jump in purchased transportation expenses.

Like many corporations, the company’s cash balance increased to $4.9 billion, up from $2.8 billion (partially due to $1.74 billion in new long-term debt).

International air freight was the real weak point in the most recent quarter. U.S. total freight revenues were slightly positive. The company’s long-term stock chart is featured below:

Mediocre FedEx Earnings a Sign of What’s to Come? image FedEx Corporation Chart

Chart courtesy of www.StockCharts.com

Given the company’s modest earnings report and the weakness apparent in international markets, I’d say the stock is expensively priced, with a price-to-earnings ratio of approximately 18.

Weakness abroad is an ongoing theme, and the fact that international customers are moving their business away from higher-margin priority shipping is worrisome. It’s something I’m sure FedEx doesn’t want to see continue.

It’s very early days for this earnings season, but already, mediocrity stands out. The stock market’s action has been all about the Fed, but now it’s time for the bread and butter; if the numbers continue like this, stocks should pull back. (See “Action in Dow Jones Transports, Utilities Signaling Caution.”)

The marketplace knows that there’s been a reduction in second-quarter earnings expectations on the part of Wall Street analysts. There have also been a few earnings warnings from corporations.

Considering how far the stock market has come since the beginning of the year, it’s very difficult to get enthusiastic about second-quarter earnings season yet.

A prolonged break in the main market indices is overdue.

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