FedEx Shares Slump 5% After Earnings Disappoint

FedEx shares slumped about 5% in extended trading on Tuesday after the Memphis, Tennessee-based delivery services company reported lower-than-expected earnings in the fiscal first quarter and slashed their full-year outlook.

The delivery firm reported a net income of $1.19 billion, or $4.37 per share, during the fiscal first quarter, down from $1.28 billion, or $4.87 per share, a year ago. The company’s revenue rose 14% to $22.0 billion, beating the market expectations of $21.8 billion.

FedEx lowered its earnings outlook to reflect first-quarter results, which were lower than the company’s June forecast. The company forecasts earnings per diluted share of $19.75 to $21.00 before the MTM retirement plan accounting adjustments and excluding estimated TNT Express integration expenses and costs associated with business realignment activities, compared to the prior forecast of $20.50 to $21.50 per diluted share.

Following this, FedEx shares slumped about 5% to $239.76 in an extended trading session on Tuesday.

Executive Comments

“The current labour environment is driving inefficiencies in the operation of our networks and significantly impacting our financial results. For the peak season ahead, service remains our focus and we are making investments in resources and capacity to meet our customer’s needs,” noted Raj Subramaniam, FedEx Corp. president and chief operating officer.

Analyst Comments

“We had previewed 1Q as a challenging quarter for FedEx (FDX) but the 10%+ miss came in well below feared. The FY guide was cut by roughly the magnitude of the 1Q miss but we believe the 1Q issues (tough comps/normalization + cost inflation) actually get tougher from here,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“We see EBIT growth through YE of FY21 driven by both margin improvement and vol. driven rev. growth which is helped by limited Airfreight capacity and an e-commerce surge, though yields are mixed. We continue to see secular threats to Parcel and remain sceptical that these trends will be sustainable but believe that until there is evidence of a reversal in earnings momentum, the stock can trade at its historical multiple (14-15x PE) on current EPS.”

FedEx Stock Price Forecast

Twenty-one analysts who offered stock ratings for FedEx in the last three months forecast the average price in 12 months of $350.42 with a high forecast of $381.00 and a low forecast of $270.00.

The average price target represents a 39.02% change from the last price of $252.07. From those 21 analysts, 17 rated “Buy”, three rated “Hold” while one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $250 with a high of $350 under a bull scenario and $125 under the worst-case scenario. The firm gave an “Equal-weight” rating on the multi-brand restaurant operator’s stock.

Several other analysts have also updated their stock outlook. Citigroup slashed the price target to $300 from $360. Baird cut the price objective to $310 from $350.

“As for our forecasts, we’ve been modelling an 11.8% adjusted ground margin for fiscal 2022 (which was likely more conservative than what was baked into the stock price), but we no longer consider that achievable considering that management expects the aforementioned cost pressures to persist (at a similar magnitude) in the fiscal second quarter,” noted Matthew Young, Equity Analyst at Morningstar.

“It sounded to us like the firm will be able to mitigate some of these headwinds in the second half, though it cautioned that elevated wage rates are not likely to budge.”