Friday, March 5, 2010

FedEx Corp. (NYSE: FDX): Q3 Earnings Preview 2010

FedEx Corp. (NYSE: FDX) is scheduled to release financial results for the fiscal third quarter on Thursday, March 18, 2010. Analysts, on average, expect the company to report earnings of 71 cents per share on revenue of $8.30 billion. In the year ago quarter, the company reported earnings of 31 cents per share on revenue of $8.14 billion.

FedEx Corporation provides transportation, e-commerce, and business services in the United States and internationally. It operates in four segments: FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services

Shipping firms such as FedEx and rival United Parcel Service (NYSE: UPS) are often considered a bellwether for the U.S. economy because the strength of their businesses serves as a useful gauge of activity in the broader economy. The company was hit hard by the severe global economic recession amid reduced demand for package shipments. In the preceding second quarter, the Memphis, Tennessee-based company reported net income of $345 million or $1.10 per share, 30% lower than $493 million or $1.58 per share in the prior-year quarter. Quarterly revenue decreased 10% to $8.60 billion from $9.54 billion in the same quarter last year. Analysts, on average, expect the company to report earnings of $1.06 per share on revenue of $8.46 billion.

The company noted that earnings and revenues declined due to lower yields, primarily due to a substantial decline in fuel surcharges. Over the last year, the company cut jobs, slashed salaries, instituted hiring freeze and suspended contributions for employees’ 401(k) retirement accounts in response to the worst recession in decades. The company expects to save about $3 billion by the end of fiscal 2010 in May from cost cuts made since June of 2008.

During a conference call in December, chairman, president and chief executive officer, Frederick Smith said, "Positive momentum in the global economy and continued execution of our business strategy drove volume growth across all FedEx transportation segments, highlighted by increased international shipments. We have taken decisive actions during the economic downturn to reduce expenses while expanding our networks in growth markets." Executive vice president and chief financial officer Alan Graf added "Our balance sheet is strong, volumes are growing, and we are encouraged by our performance as we emerge from the worst economic downturn in FedEx history. While there is some uncertainty regarding the sustainability of current demand trends after our peak shipping season, we expect our strong operating leverage to provide improved year-over-year profitability in the second half of our fiscal year."

For the third quarter, FedEx expects earnings in a range of $0.50 to $0.70 per share. For fiscal 2010, the company anticipates earnings in the range of $3.45 to $3.75 per share. The company noted that the forecast reflects the current market outlook for fuel prices and a continued modest recovery in the global economy.

FedEx is well positioned to benefit from faster-than-expected economic recovery. It's margins are expected to improve economic health is a key determinant of package volumes. It is also poised to benefit from the turmoil at the U.S. Post Office as budget issues as well as reliability and efficiency concerns continue to come under scrutiny," the note added.

Recently, Fortune magazine ranked FedEx Corp. among the top 20 most admired companies in the world for the 10th consecutive year. Fortune cited the ability of FedEx to manage costs while maintaining service levels during the economic downturn, and increased demand in international business, especially in Asia and Latin America, as enhancing the corporation’s overall reputation for reliable deliveries.

Among other developments during the quarter, the Board of Directors of FedEx Corporation declared a quarterly cash dividend of $0.11 per share on FedEx Corporation common stock. The dividend is payable April 1, 2010 to stockholders of record at the close of business on March 11, 2010.

The company's stock currently trades at a forward P/E (fye 31-May-11) of 18.01 and PEG Ratio (5 yr expected) of 3.36. In terms of stock performance, FedEx shares are up 107% over the past year.

Full Disclosure: None.
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