I think it's tough to invest in FedEx (FDX) right now, because their earnings are part of a bigger picture. The world economy is what drives this kind of stock. And the world economy is becoming, murky. It shouldn't come as a surprise to anyone that global trade is affecting companies like FedEx. The current trade tensions going on across the globe with the United States, principally with China, were bound to affect shipping firms to some degree.
There has been a bit of slowdown in certain economic areas of the world, and that certainly affects the amount of goods being moved. With lowered guidance for the year, there doesn't seem to be much of a catalyst for FedEx at the moment. While the stock price doesn't trade at too high a premium relative to its earnings, I think it'll take a defined trade deal with China, along with improvements in Europe, in order for the stock to find its momentum again. Those European improvements seem distant.
Revenue increased in the fiscal third quarter results by 3% to $17.01 billion; failing to satisfy estimates on revenue growth. Earnings were where the real disappointment arose. Thanks to a contrast with a tax benefit last year, FedEx reported a 64% drop in net income year over year to $739 million. On a diluted share basis, it broke down to $2.80. That's a comparable 63% fallout from last year.
FedEx Express international revenues were the root of many problems here. For the package segment, U.S. revenue was stagnant, while international packages declined across the board. Freight revenue grew in the United States while it declined internationally across every segment. The largest area of rate decline was international airfreight, which had an 18% decrease in revenues. In all, FedEx Express revenue declined 1%.
I'm not so sure that FedEx itself is at fault. The company operates within an industry that is entirely dependent on world economies. Economic conditions are a mixed bag. The world economy certainly doesn't seem as strong as the United States domestic performance. China is obviously suffering from our current trade tariffs (even if they won't admit it). Europe is looking weak as well. Germany is the largest driver of the EU, and the growth is getting rather thin there. I personally see this trend remaining for awhile. The auto cycle is certainly on the decline, and the Germany economy is heavily vested in the success of its auto manufacturing and the exports of those cars.
When you couple in the ever pending deliberations with the UK over their exit from the European Union, it's very difficult to see where the overall structure of their economy is heading. Therefore, I remain rather indifferent to freight stocks with international exposure. I certainly won't be buying FedEx. We're due for a recession. Whether it happens in 2020 or 2021, or 2025, I don't see the point in getting involved in a company that is so reliant on trade for growth, when we're already seeing some signs of international weakness.
Something that I think would drastically boost this stock over the short term would be a deal between the U.S. and China on trade. But the details and specifications of that deal seem very difficult to predict at this point. The company's CFO did put a concern to ease that I've been wondering about for awhile, namely the threat of Amazon's (AMZN) own shipping initiatives. The executive iterated that Amazon's goods represented 1.3% of FedEx's total goods moved in 2018. My concern over FedEx missing out on e-commerce is dissuaded.
New forecasts now give us a picture of full year earnings of $11.95 to $13.10 per share. These numbers are based on earnings prior to the adjustments related to retirement plan accounts, so we don't actually know where the company's earnings are going to end up. Going off the high end of that guidance, FedEx is trading at roughly 13x forward earnings. That's a pretty cheap stock. For the very long term inclined it might be tempting. The problem I see is that earnings could shrink more if the world economy doesn't right itself. Considering that the United States has yet to join the slowdown, I think there's some fair risk of things deteriorating more before they get better. To that end, I don't like the stock at this time. Again, the big caveat here would be a deal with China. But I think Europe might be the bigger problem.