FedEx Corporation FDX is set to report second quarter fiscal 2016 results after the closing bell on Dec 16. Last quarter, FedEx – a leading player in the field of global express delivery services – posted a negative surprise of 0.82%. In fact, the company has a dismal record with respect to earnings, having missed expectations in three of the last four quarters.
Let’s see how things are shaping up prior to the announcement.
Factors to Consider
We expect FedEx’s fiscal second quarter results to be hurt by a strong dollar as was the case in the preceding quarter. Lower fuel surcharges and adverse foreign currency movements will likely hurt results in the quarter.
Escalated costs at the FedEx Ground unit are also likely to weigh on the company’s fiscal second quarter outcome. FedEx had trimmed its fiscal 2016 earnings outlook on its fiscal first quarter earnings call. We expect focus to remain on whether the outlook is set for yet another change on this quarter’s conference call as well.
Apart from the earnings numbers, the company’s commentary on the ongoing holiday season sales should grab attention. In October this year, the company had unveiled a rosy forecast pertaining to the holiday season, predicting record shipping volumes during the period. The Memphis, TN-based shipping giant had predicted 317 million shipments – a 12.4% year-over-year increase – during the Black Friday-to-Christmas Eve period.
Alongside, we expect an update on FedEx’s impending purchase of TNT Express TNTEY on the second quarter conference call. The deal, announced in April this year, is projected to close in the first half of calendar year 2016. Once materialized, the acquisition should significantly expand FedEx’s scale of operations, particularly in Europe. The expansion of its capabilities will enable FedEx to compete more effectively with rivals like United Parcel Service Inc. UPS that has a significant European footprint.
Earnings Whispers
Our proven model does not conclusively show that FedEx is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: Earnings ESP for FedEx is -5.14% as the Most Accurate estimate of $2.40 is lower than the Zacks Consensus Estimate of $2.53 per share.
Zacks Rank: FedEx carries a Zacks Rank #4 (Sell).
We caution against stocks with Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions. Earnings estimate for the fiscal second quarter has gone down by a penny to $2.53 per share over the last 7 days.
A Transportation Gem
Although FedEx is likely to disappoint this earnings season, investors may consider United Continental Holdings UAL in the transportation sector. United Continental is likely to report higher-than-expected earnings as it has an earnings ESP of +3.95% and a Zacks Rank #3.
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