Earnings Preview For FedEx

By Brendan Gilmartin

Overview

FedEx (FDX) is scheduled to report 2Q 2012 earnings before the bell on Thursday, December 15. The results are typically disseminated at 7:45 a.m. EST and will follow with a conference call at 8:30 a.m. Profits from FedEx are widely seen as a proxy for economic growth and tend to heavily influence the broader market gauges, including the equity index futures.

Outliers & Strategy

Key measures:

• Earnings Per Share (EPS): FedEx typically reports a “clean” number for Earnings Per Share that is comparable to consensus estimates. There are several exceptions whereby Earnings Per Share (EPS) Excluding Items or Non-GAAP Earnings Per Share (EPS) were the relevant values. Extraneous items that have not been factored into the EPS figure that may not make it comparable with Street forecasts.
• Adjusted/Earnings Per Share (EPS) Guidance (3Q 2012): Note that FedEx tends to offer fairly conservative guidance. Current estimates are toward the upper end of the company’s range.
• Adjusted/Earnings Per Share (EPS) Guidance (FY 2012). The underlying expectation is that FedEx will maintain the previously issued outlook.
• FedEx previously reported it projects EPS to be $1.40 to $1.60 in the second quarter and $6.25 to $6.75 for fiscal 2012. The Street estimates are $1.52 and $6.28 per share, respectively (Source: Yahoo Finance).

Recent News

• 12/12: Lazard Capital Markets reiterated a Buy rating and a $100 price target on FedEx, citing a rebound in volumes for the month of November and a strong start to the holiday shopping season. Barron’s
• 12/05: Citigroup reiterated a Buy rating and $95 price target on FedEx, based in part a recent Ground rate increase. Benzinga.com
• 12/02: FedEx will increase shipping rates for FedEx Ground and FedEx Home Delivery by a net 4.9% starting in January 2012.
• 11/29: Deutsche Bank maintained a Buy rating on FedEx and raised the 2Q EPS estimate from $1.50 to $1.65, based on improving margins, growth in the ground segment, pricing, and valuation. Benzinga.com
• 11/18: FedEx declared a quarterly cash dividend of $0.13 per share on its common stock.
• 10/24: FedEx expects to move more than 17 million shipments – almost double its daily average volume – through its global networks on December 12. FedEx reiterated this outlook on 12/9. The impact of the expected higher volumes was included in the earnings guidance issued in September.

Technical Review

FedEx shares are up more than 25% off the October lows, but recently failed for the second time in two months at the 200-Day SMA near $85. Should earnings disappoint, watch $80, a key near-term support level going back to August, followed by $77.50, just below the 50-Day SMA. Conversely, the $85-level is resistance, with plenty of room to run in the event of a positive earnings release. (Chart courtesy of StockCharts.com).

Click to enlarge

Summary

FedEx shares have been on a solid run over the past two months, climbing more than 25% off the October lows, thanks to a recent increase in ground shipping rates, evidence of a strong start to the holiday shopping period, a pick-up in volume for November, and the recent string of improved U.S. macroeconomic data. FedEx is also trading at a mere 11.34x forward earnings, a discount to the S&P 500 and below close rival UPS (UPS) (15.1x). Against this positive backdrop, results below analyst estimates would be seen as a clear disappointment. In order for the shares to reach and overcome the $85 resistance barrier, a strong quarter and upbeat outlook for 3Q and beyond may be necessary.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.