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Analysts expect FedEx (FDX) to disappoint investors again when it releases its first quarter fiscal year results on Sept. 17. They expect the first quarter results of fiscal year 2020 delivery giant to drop for the third consecutive quarter. FedEx has a history of mixed profits. Analysts have beaten their estimates seven times and the missing estimates five times.
Analysts expect FedEx's first-quarter revenue to remain stable at $ 17.1 billion (year-over-year). Low revenue growth and higher expenses could weigh on Q1's first quarter results. Analysts expect FedEx's first quarter adjusted EPS to drop by 8.4% year-on-year to $ 3.17.
Trade slowdown hurts FedEx results in the first quarter
Wall Street's revenue growth forecast for the first quarter of FedEx is the lowest in the last 12 quarters. This dismal forecast reflects analysts' concerns about the slowdown in global trade. FedEx is already suffering from the slowdown in world trade in recent quarters.
During its fourth quarter results of fiscal year 2019, the company revealed that an economic downturn in Europe and Asia was adversely affecting its international operations. According to the press release, the European economy suffers from negative manufacturing output in Germany and Italy. In Asia, the ongoing trade war between the United States and China is affecting FedEx's international operations.
While presenting its outlook for the 2020 fiscal year, FedEx cautioned about the lingering repercussions on its short-term financial results. Refocusing on low-yielding services could also weigh on the first and last quarter results of the first quarter.
In addition, higher costs due to the integration of TNT Express and increased investments in facility upgrades could weigh on FedEx's net results for the first quarter. The company is also aggressively investing in standalone delivery solutions such as FedEx SameDay Bot. These investments could weigh on the results of the first quarter.
The expiry of the Amazon contract will affect the first quarter results
FedEx's latest decision not to renew two logistics contracts with Amazon (AMZN) will also have a negative impact on its first quarter results. In June, FedEx did not renew its national air transport contract with Amazon. In August, it also did not extend its ground delivery contract for Amazon's international parcels.
The company justifies its decision by saying that severing ties with Amazon will help it focus and use its own resources in the broader e-commerce market in the long run. However, we believe that the non-renewal of two contracts will have a significant impact on FedEx's results in the first quarter. The e-commerce giant accounts for approximately 1.3% of FedEx's annual revenues.
The majority of FedEx logistics companies report their third quarter results in fiscal year 2019 in October. Analysts 'forecasts of rival United Parcel Service (UPS)' s earnings reflect a potential year-over-year increase of 13.7% in the third quarter. In addition, Wall Street expects XPO Logistics (XPO) and Old Dominion Freight Lines (ODFL) to record year-over-year earnings growth of 22.2% and 1.3%, respectively.
FedEx Stock Market Performance
FedEx shares have lost more than 31% of their market value in the past year. At its closing price on September 12, at $ 173.51, the stock trades near its 147-week low of $ 147.82. In addition, it is down 33% from its peak of $ 259.25 in 52 weeks.
The decline in FedEx shares is well above that of the iShares Transportation Average ETF (IYT) funds. The ETF has lost 6.9% of its value in the past 12 months. IYT invests in the Dow Jones Transportation Shares in the United States and nearly 20% of its portfolio consists of Air Freight and Mail companies. FedEx also underperformed the performance of the broader market. Over the same period, the Dow Jones and S & P 500 gained 4.6% and 4.2%, respectively.
Aside from a dismal quarterly performance in a row, the main reason FedEx's underperformance is the uncertainty surrounding the US-China trade talks. FedEx is struggling with ongoing trade tensions between the United States and China.
The company is facing two government investigations in China concerning illegal deliveries of some parcels of Huawei Technologies. The Chinese government's decision is seen as a retaliatory move following the Trump government's ban on interacting with US companies with Huawei in mid-May.
The company may also be added to China's list of unreliable entities. Its activities in China represent nearly 6% of its total turnover. As a result, its stock is extremely vulnerable to the ongoing trade war between the two largest economies in the world. Boeing's stock has also been negated due to concerns regarding Amazon's growing competitive threat. The e-commerce giant is aggressively investing in building its own logistics infrastructure.
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