FedEx Delivers Mixed Q1 Results; Shares Sink 5%

Global transportation and logistics company FedEx Corporation (FDX) delivered mixed first-quarter results driven by pandemic-related labor unavailability and supply chain disruptions. Following the news, shares sank 4.9% in the extended trading session on September 21.

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The company reported adjusted earnings of $4.37 per share, down 10.3% year-over-year, and missed analysts’ estimates of $5.00 per share. (See FedEx stock charts on TipRanks)

Revenue stood at $22 billion, up 14% year-over-year, and marginally surpassed the Street’s estimate of $21.91 billion.

During the quarter, the company recorded $450 million of incremental costs associated with labor market constraints resulting in higher wages and purchased transportation expenses. This was partially offset by favorable package and freight yields, positive net fuel impact, and higher international export express shipments.

Commenting on the results, Raj Subramaniam, President, and COO of FedEx said, “The FedEx teams continue to diligently deliver for our customers under unique and challenging circumstances. The current labor environment is driving inefficiencies in the operation of our networks and significantly impacting our financial results. For the peak season ahead, service remains our focus and we are making investments in resources and capacity to meet our customer’s needs.”

Recently, FedEx announced company-wide shipping rate hikes, effective January 3, 2022. FedEx Express, FedEx Ground, and FedEx Home Delivery shipping rates will increase by an average of 5.9%, while FedEx Freight rates will increase by an average of 5.9% to 7.9%.

Due to the ongoing labor challenges and uncertain operating environment, FedEx is unable to provide Fiscal 2022 GAAP-related metrics. Though the company expects these headwinds to continue in the near term, management does expect a gradual improvement in labor availability, coupled with their proactive revenue management, to position the company for earnings growth in Fiscal 2022.

For Fiscal 2022, the company reduced its estimates to reflect the first-quarter results. FedEx now forecasts adjusted earnings to be in the range of $19.75 – $21.00 per share compared to the consensus estimate of $21.20 per share.

Recently, Robert W. Baird analyst Garrett Holland assigned a Buy rating on the stock with a price target of $350, implying 38.9% upside potential.

In a Q1FY22 earnings preview report, Holland stated that investors have underappreciated the company’s better relative growth (e-commerce tailwinds) and margin improvement opportunities (durable parcel pricing, TNT integration benefits).

The analyst listed certain factors for his optimistic view about the stock, namely, diverse suite of leading transportation services, sustainable leadership position in attractive markets, long-term express global package volume growth to meet/exceed GDP growth, share gains, operating leverage in Ground, and opportunity in freight.

Also, Holland expects e-commerce to account for over 90% of total market volume growth through 2026, and he believes that FedEx is well-positioned to capitalize on this accelerating growth trend.

Overall, the stock commands a Strong Buy consensus rating based on 17 Buys, 3 Holds, and 1 Sell. The average FedEx price target of $350.42 implies 39% upside potential to current levels. Shares have gained 3.6% over the past year.