FedEx Company Earnings Do Not Jibe With Raised Earnings Outlook

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FedEx Corp. (NYSE: FDX) reported second-quarter fiscal 2014 results before markets opened Wednesday morning. The package delivery service reported diluted earnings per share (EPS) of $1.57 on revenues of $11.4 billion. In the same period a year ago, FedEx reported EPS of $1.39 on revenue of $11.1 billion. Second-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $1.64 and $11.43 billion in revenue.

The company raised its previous guidance for the 2014 fiscal year for EPS growth from a range of 7% to 13% above 2013 results to a new range of 8% to 14% above last fiscal year’s earnings. Based on 2013 results, FedEx is projecting EPS for 2014 in the range of $6.73 to $7.10. The consensus estimate calls for full-year EPS of $7.03, up from the estimate of $6.98 just three months ago.

The company’s forecast assumes “continued moderate economic growth.” The company’s CFO said, “We remain on track to deliver a solid increase in earnings this fiscal year.”

FedEx continues to focus on cost cutting and overcoming the impact of higher fuel costs. Operating margins in its Express segment rose slightly, from 3.4% in the first quarter a year ago to 4.8%. Margins fell from 15.9% to 14.9% in the Ground segment and dropped from 5.5% last year to 5.4% in the Freight segment.

Competitor United Parcel Service Inc. (NYSE: UPS) is not scheduled to release earnings until the end of January. The consensus estimates call for EPS of $1.43 on revenues of $15.11 billion. UPS currently has forward multiple of 18.61, compared with FedEx’s multiple of 15.65. At Tuesday night’s closing prices, the implied gain for FedEx stock based on a consensus price target of around $143.70 is 3.3%. The potential upside for UPS stock based on its price target of around $106.30 is 4.2%. Not a lot to choose from there.

Shares of FedEx were down about 1.3% in premarket trading Wednesday, at $137.32 in a 52-week range of $90.02 to $140.97.