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FDX Down 12% Since Q1 Earnings Miss: Should You Buy the Stock Now?
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On Sept. 19, 2024, FedEx Corporation (FDX - Free Report) posted disastrous first-quarter fiscal 2025 (ended Aug 31, 2024) results, reporting lower-than-expected earnings per share and revenues. The transportation heavyweight also lowered its fiscal 2025 earnings per share outlook, highlighting the weak demand scenario.
Brief Recap of FDX’s Q1 Performance & FY25 View
Quarterly earnings per share (excluding 39 cents from non-recurring items) of $3.60 missed the Zacks Consensus Estimate of $4.82 and declined 20.8% year over year. Revenues of $21.6 billion fell short of the Zacks Consensus Estimate of $22.1 billion and declined 0.5% from the year-ago quarter’s reported figure.
Results were hurt by lower demand for higher-margin priority services with market conditions remaining challenging. During the quarter, FDX witnessed a reduction in demand for priority services, and higher demand for deferred services and low yield growth. These factors, apart from higher operating expenses, one less operating day and low U.S. domestic package volumes, negatively impacted the quarterly results. Average daily shipments fell 3% year over year.
Given the weak demand scenario, FedEx expects fiscal 2025 earnings per share (after excluding costs related to business optimization initiatives) in the $20-$21 range, down from the previous guidance of $20-$22. The Zacks Consensus Estimate for fiscal 2025 earnings per share is currently pegged at $19.99 per share. The revenue growth outlook was also adjusted to a low-single-digit percentage (earlier expectation was for a low- to mid-single-digit percentage growth).
Naturally, the lackluster results and the bleak outlook disappointed investors. Shares of FDX lost 12.2% since the earnings release compared with the 5.4% decline of its industry.
Image Source: Zacks Investment Research
As a result of the lackluster results and the fiscal 2025 outlook cut, earnings per share estimates are moving southward.
Image Source: Zacks Investment Research
Given the recent weakness in FDX shares, investors might be tempted to buy the stock. But is this the right time to buy FDX? Let’s find out.
FDX’s Fundamental Strength
For long-term investors, a single quarter’s results are not so important. They would rather base their investment decision on the underlying fundamentals. FDX scores impressively on that front, driven by its strong operating model.
FDX’s endeavors to expand into its operations are commendable. Prudent investments enable it to extend services and solidify its comprehensive offerings. To combat the demand weakness, FDX is focused on the reduction of structural costs through its DRIVE program initiatives.
DRIVE initiatives are expected to result in savings worth $4 billion by fiscal 2025 compared with the fiscal 2023 baseline. The company has implemented significant new pricing actions relating to both demand and fuel surcharges, whose benefits can be seen in the coming quarters. These cost-reduction initiatives include reducing flight frequencies, parking aircraft and cutting staff.
The company’s efforts to reward its shareholders are commendable. In June 2024, FedEx raised its quarterly dividend by 10% to $1.38 per share (or $5.52 annually). Dividend stocks like FDX are generally safe bets for creating wealth, as these payouts act as a hedge against economic uncertainty.
FDX is also active on the buyback front. Supported by its healthy cash balance and strong adjusted free cash flow, FDX repurchased $1 billion worth of shares in the fiscal first quarter and aims to buy back an additional $1 billion in the second quarter.
Despite near-term challenges, it’s worth noting that the company has the brand and the network to continue generating steady cash flows in the long run.
Valuation Picture Attractive: An Added Tailwind for FDX
Going by the forward 12-month price/earnings ratio, the company’s shares currently trade at levels lower than its industry and its five-year median. FDX currently has a Value Score of A.
Image Source: Zacks Investment Research
FDX’s valuation is also more attractive than rival United Parcel Service (UPS - Free Report) and another industry player Air Transport Services Group (ATSG - Free Report) .
To Sum Up
There is no doubt that the stock is attractively valued, and shareholder-friendly initiatives attest to FDX’s financial bliss. However, given the headwinds mentioned in the write-up, we believe that it is not at all advisable to buy the dip in this Zacks Rank #3 (Hold) stock currently. With declining earnings estimates, the stock is witnessing negative investor sentiments. Investors should monitor the company’s developments closely for an appropriate entry point. For those who already own the stock, it will be prudent to stay invested. The stock’s current Zacks Rank supports our thesis.
Image: Bigstock
FDX Down 12% Since Q1 Earnings Miss: Should You Buy the Stock Now?
On Sept. 19, 2024, FedEx Corporation (FDX - Free Report) posted disastrous first-quarter fiscal 2025 (ended Aug 31, 2024) results, reporting lower-than-expected earnings per share and revenues. The transportation heavyweight also lowered its fiscal 2025 earnings per share outlook, highlighting the weak demand scenario.
Brief Recap of FDX’s Q1 Performance & FY25 View
Quarterly earnings per share (excluding 39 cents from non-recurring items) of $3.60 missed the Zacks Consensus Estimate of $4.82 and declined 20.8% year over year. Revenues of $21.6 billion fell short of the Zacks Consensus Estimate of $22.1 billion and declined 0.5% from the year-ago quarter’s reported figure.
Results were hurt by lower demand for higher-margin priority services with market conditions remaining challenging. During the quarter, FDX witnessed a reduction in demand for priority services, and higher demand for deferred services and low yield growth. These factors, apart from higher operating expenses, one less operating day and low U.S. domestic package volumes, negatively impacted the quarterly results. Average daily shipments fell 3% year over year.
Given the weak demand scenario, FedEx expects fiscal 2025 earnings per share (after excluding costs related to business optimization initiatives) in the $20-$21 range, down from the previous guidance of $20-$22. The Zacks Consensus Estimate for fiscal 2025 earnings per share is currently pegged at $19.99 per share. The revenue growth outlook was also adjusted to a low-single-digit percentage (earlier expectation was for a low- to mid-single-digit percentage growth).
Naturally, the lackluster results and the bleak outlook disappointed investors. Shares of FDX lost 12.2% since the earnings release compared with the 5.4% decline of its industry.
As a result of the lackluster results and the fiscal 2025 outlook cut, earnings per share estimates are moving southward.
Given the recent weakness in FDX shares, investors might be tempted to buy the stock. But is this the right time to buy FDX? Let’s find out.
FDX’s Fundamental Strength
For long-term investors, a single quarter’s results are not so important. They would rather base their investment decision on the underlying fundamentals. FDX scores impressively on that front, driven by its strong operating model.
FDX’s endeavors to expand into its operations are commendable. Prudent investments enable it to extend services and solidify its comprehensive offerings. To combat the demand weakness, FDX is focused on the reduction of structural costs through its DRIVE program initiatives.
DRIVE initiatives are expected to result in savings worth $4 billion by fiscal 2025 compared with the fiscal 2023 baseline. The company has implemented significant new pricing actions relating to both demand and fuel surcharges, whose benefits can be seen in the coming quarters. These cost-reduction initiatives include reducing flight frequencies, parking aircraft and cutting staff.
The company’s efforts to reward its shareholders are commendable. In June 2024, FedEx raised its quarterly dividend by 10% to $1.38 per share (or $5.52 annually). Dividend stocks like FDX are generally safe bets for creating wealth, as these payouts act as a hedge against economic uncertainty.
FDX is also active on the buyback front. Supported by its healthy cash balance and strong adjusted free cash flow, FDX repurchased $1 billion worth of shares in the fiscal first quarter and aims to buy back an additional $1 billion in the second quarter.
Despite near-term challenges, it’s worth noting that the company has the brand and the network to continue generating steady cash flows in the long run.
Valuation Picture Attractive: An Added Tailwind for FDX
Going by the forward 12-month price/earnings ratio, the company’s shares currently trade at levels lower than its industry and its five-year median. FDX currently has a Value Score of A.
FDX’s valuation is also more attractive than rival United Parcel Service (UPS - Free Report) and another industry player Air Transport Services Group (ATSG - Free Report) .
To Sum Up
There is no doubt that the stock is attractively valued, and shareholder-friendly initiatives attest to FDX’s financial bliss. However, given the headwinds mentioned in the write-up, we believe that it is not at all advisable to buy the dip in this Zacks Rank #3 (Hold) stock currently. With declining earnings estimates, the stock is witnessing negative investor sentiments. Investors should monitor the company’s developments closely for an appropriate entry point. For those who already own the stock, it will be prudent to stay invested. The stock’s current Zacks Rank supports our thesis.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.