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FedEx (FDX) lowered its full-year 2022 profit outlook after missing fiscal first quarter results as the costs of dealing with pandemic labor and supply chain disruptions rose. FedEx shares fell late.
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FedEx revenues
Estimates: On a per share basis, Wall Street expects FedEx earnings to rise 0.1% to $ 4.88, according to FactSet. Revenue is expected to increase 14% to $ 21.926 billion. Year-to-year comparisons are becoming increasingly difficult.
Results: FedEx earnings per share fell to $ 4.37 as revenue rose 14% to $ 22 billion. The operating margin reached 6.8%, up from 8.5% a year ago. The results reflect an estimated increase in costs of $ 450 million year-over-year due to a tight labor market, which impacted labor availability and resulted in an increase in wages, FedEx said.
Outlook: FedEx is now forecasting EPS of $ 19.75 to $ 21 for fiscal 2022, down from a June view of $ 20.50 to $ 21.50. Analysts had expected EPS of $ 21.13 for the full year, according to FactSet.
“Conditions during the first quarter were tougher than expected and are now expected to extend longer,” FedEx said Tuesday evening. In particular, CEO Frederick Smith highlighted “the disruptive impact of the pandemic on workforce availability and global supply chains.” And CFO Michael Lenz pointed to higher operating costs in an “uncertain and difficult” operating environment. Lenz expects labor availability to gradually improve in the second half of fiscal 2022.
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FedEx Stock
Shares of the shipping giant fell 4% to near 242 on Tuesday night’s stock trading. FedEx stock closed 0.5% higher at 252.07. FDX stock is at six-month low, continuing to trade below the 21-day line and well below the 50 and 200 days.
FedEx stock broke through the 50-day line in June and remains well below that key support level with no buying point in sight, according to MarketSmith’s chart analysis. The line of relative force is very late. A falling RS line, the blue line in the graph shown, means that a stock is underperforming the S&P 500 Index.
UPS (UPS), which beat Q2 views in July but warned of slowing growth, fell 2% overnight. UPS stock is at nearly five-month low, drifting towards its 200-day line.
FedEx earnings have beaten expectations in four of the past five quarters. They were spurred on by the pandemic boom in online shopping.
Along with rival UPS, FedEx has also played a key role in delivering Covid-19 vaccines to the United States and dozens of other countries.
Reship Giant Hikes Rates
While UPS and FedEx both increased rates and surcharges to offset rising costs, they struggled to make deliveries on time. Rising e-commerce volumes weighed on network capacity.
On Monday evening, FedEx announced that it would increase shipping rates by 5.9% on average for most of its services starting in January. It will add fuel surcharges to shipments starting in November.
The measures come after FedEx suspended service to about 1,400 freight customers in June, citing network congestion.
As the pandemic eases, analysts at Edward Jones are looking for business-to-business, or B2B, deliveries that are more profitable for FedEx, to recover from depressed levels.
Despite the challenges, analysts say the outlook “remains overwhelmingly positive” for FedEx. They point to solid demand and a favorable pricing environment, which should offset cost headwinds.
Meanwhile, FedEx saw a key customer Amazon (AMZN) has become a competitor in delivery and logistics, while also acquiring the ShopRunner e-commerce platform itself.
AMZN stock fell 0.4% on Tuesday, after finding support at its 200-day line on Monday.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
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