Yes, FedEx (FDX) went to the tape with the firm's fiscal third quarter performance on Thursday evening. As we know, FDX earnings tend to always be an adventure. This is one reason why, though I am often long both United Parcel Service (UPS) (I am long right now), and FDX (I am not long right now), if asked... I would say that I am invested in UPS and that I trade FDX.
For the three month period ending February 28th, FedEx posted adjusted EPS of $4.59 on revenue of $23.6B. Though this adjusted earnings number presents as 32% year over year growth, it did fall short of expectations. The revenue print did beat Wall Street and was good for annual growth of 9.8%. GAAP EPS came to $4.20, after adjusting for business realignment costs ($0.31) and TNT Express integration expenses ($0.08).
Adjusted operating income increased 38% to $1.462B, and through an operating margin of 6.2% produced adjusted net income of $1.217B, or an adjusted $4.59 per share. Net income included a tax benefit of $78M ($0.29 per share) related to revisions of prior year estimates for actual tax return results.
The Business
FedEx Express operating results increased, driven by higher yields, a net fuel benefit, and lower variable compensation expense. These results were partially offset by the negative effects of the spread of the Omicron variant of the SARS-CoV-2 coronavirus regarding labor availability and shipping demand.
FedEx Ground operating results declined primarily due to increased rates for purchased transportation and employee wages, network inefficiencies, and expansion-related costs. This was partially offset by higher revenue per package, two additional ground commercial operating weekdays, and a net fuel benefit.
FedEx Freight operating results nearly tripled, driven by a focus on quality and growth. Revenue per shipment here increased 19%, while average daily shipments increased 2%.
Balance Sheet
FedEx ended the quarter with a net cash position of $6.065B, and current assets of $19.466B. This measures up against current liabilities of $13.99B. None of these numbers are out of line with past balance sheets, nor do they surprise me. This makes for a current ratio of 1.39, which is healthy enough. Total assets of $84.108B easily outweigh total liabilities less equity of $64.388B. Long-term debt is up from three months ago, while the entry for goodwill is down small. This balance sheet does get a passing grade. I would prefer to see a greater effort to work down that debt load.
Guidance
To start off, FedEx states in the press release that the firm is unable to forecast the year end fiscal 2022 mark to market retirement plans accounting adjustment. As a result, the firm is unable to provide a fiscal 2022 earnings per share or effective tax rate outlook on a GAAP basis.
For the fiscal year, FedEx now sees earnings per diluted share of $18.60 to $19.60 ahead of the year end retirement plan adjustment, compared to the firm's prior forecast of $18.25 to $19.25. The firm projects earnings per diluted share of $20.50 to $21.50 (These guys know that Wall Street thinks a dollar-wide range is ridiculous, right?), ahead of that year-end retirement plan adjustment and excluding estimated TNT Express integration expenses, and estimated business realignment costs. I guess readers don't need to know all of that. What readers need to know is that Wall Street was looking for $20.60 to $20.65 on this metric.
Wall Street
It appears that while these earnings have not provoked any significant ratings changes, there are a couple of cuts being made to price targets this morning. I can find five sell-side analysts who are rated at five stars by TipRanks who have also opined on FDX since these earnings were released.
All five still have either a "buy" rating or a "buy-equivalent" rating on FDX, The average price target across the five is $277.60, with a high of $285 (Jack Atkins of Stephens) and a low of $270 (Christian Wetherbee of Citigroup). It may or may not be important to note that Wetherbee had come in with a $300 PT prior to these numbers.
My Thoughts
FDX came into Friday morning a bit short-term overbought technically, but still in a longer-term downtrend. The shares need to make progress against the 21 day EMA, 50 day SMA and 200 day SMA before investors decide to get in and stay in. Otherwise many are doing exactly what I do with this name, trading it, because despite the trend, the shares do range back and forth significantly.
Personally, even trading at 11 times forward looking earnings, I would rather go out three months (May), and get paid something like $8.25 to take on $200 equity risk than I would plunk down $217 to $220 to buy equity today. Just don't sell those puts and forget about them unless you buy a like number of puts with the same expiration but a lower strike... just to put a lid on potential losses.
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