How FedEx Earnings Are Being Held Back

FedEx Corp. (NYSE: FDX) reported its fiscal fourth-quarter financial results Wednesday before the markets opened. The company had $2.66 in earnings per share (EPS) on $12.1 billion in revenue, compared to Thomson Reuters consensus estimates of $2.43 in EPS on $12.31 billion in revenue. In the same period of the previous year, FedEx reported EPS of $2.54 and revenue of $11.84 billion.

For fiscal 2016, FedEx projects its earnings to be $10.60 to $11.10 per share, driven by continued improvement in base pricing and benefits from its profit improvement program. The outlook assumes continued moderate economic growth and does not include any operating results or costs related to TNT Express. There is a consensus estimate for the 2016 fiscal year earnings of $10.88 per share.

Also within the earnings release was an announcement that independent members of its board have approved a change to FedEx’s corporate governance guidelines to increase the mandatory retirement age for directors to 75, up from 72.

In terms of its segments, FedEx reported for the fiscal fourth quarter compared to the same period last year:

  • Express revenue was down 4% to $6.7 billion, with adjusted operating income of $598 million, up 12%.
  • Ground revenue increased 19% to $3.57 billion, with flat operating income of $603 million.
  • Freight revenue increased 1% to $1.57 billion, with operating income increasing 5% to $137 million.

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Overall, operational income increased practically across the board for all segments, leading to a beat on the bottom line. However, for FedEx to persuade investors, it must maintain solid revenue growth to back up these earnings. Perhaps a larger dividend hike than what was declared earlier would have been more convincing?

Frederick Smith, chairman, president and CEO of FedEx, commented on earnings:

Fiscal 2015 was a transformative year for FedEx with outstanding financial results driving expanded long-term value for shareowners. Significant acquisitions announced in the year promise to strengthen our portfolio of services and change what’s possible for customers. I am very proud of the FedEx team for its accomplishments and look forward to a successful fiscal 2016.

Currently FedEx has an annualized dividend of $1.00, with a yield of 0.5%. This does not stack up well against the competition. United Parcel Service Inc. (NYSE: UPS) offers an annualized dividend of $2.92, with a yield of 2.9%.

Shares of FedEx closed Tuesday down about 0.2% to $182.13, in a 52-week trading range of $145.08 to $185.19. In premarket trading Wednesday, shares were down an additional 1.7% to $179.00. The stock has a consensus analyst price target of $194.21.

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