FedEx Corporation (NYSE:FDX) reported a better-than-expected fourth quarter 2016 earnings yesterday, beating the streets revenue, net income and earnings per share (EPS) estimates. The company reported $13 billion in revenues after four straight quarters of $12 billion. However, despite solid earnings, the shipping giant’s stock is trading down 1.24% at $161.92 during aftermarket hours.
For the quarter, the company reported $0.26 loss per share compared to a $3.14 loss per share for the year before. However, taking into account adjustments of pension-accounting, TNT acquisition, and integration-related expenses and other items, adjusted per-share earnings rose to $3.30 from $2.66 an year ago.
During the company’s earnings call, FedEx announced that its expenditure is expected to rise this year as the shipping giant increases capex to accommodate airplane fleets and expansion in e-commerce. The company announced that it will increase capital expenditure for 2017 by 6% to $5.1 billion, excluding the acquisition of TNT Express. Although the company could not provide a complete guidance for 2017, it does expect its EPS for the year to come in at $11.75 to $12.25.
Additional expenditure has taken a toll on the company’s operating margin and investor confidence, which reflects the drop in share price. In regards to the expenditure, CEO Fred Smith said: “We don’t manage FedEx Corporation trying to maximize each segment margin each year and if we did that, we would never be able to take advantage of this broad portfolio and the cross selling that’s available to us…. It would be wonderful if every year we could have maximum margins at all of our operating companies, but that’s just not realistic.”
FedEx will continue to spend heavily on supporting its ground and e-commerce operations to accommodate the growth in e-commerce shopping from customers. As for the past three years, FedEx has not been able to meet the demand from e-commerce companies especially Amazon during peak-seasons.
US Economy to Support FedEx’s 2017 Ambitions?
According to the company, the US economy is expected to grow at 1.8% for 2016, lower than its previous estimates of 2.2%. The shipping giant said that it expects consumer spending to be at the forefront of the US economic growth. The company expects industrial production to decline by 0.6% in 2016, 120 basis points lower than last quarter and increase to 2.3% in the year after.
FedEx gave a rather robust guidance for 2017 in comparison to economic conditions. The upcoming elections have also created uncertainty around the GDP growth expectations. Mr. Smith said in regards to the elections: ”Obviously we are concerned about the anti-trade rhetoric, a lot of the antibusiness positions and it’s very worrisome. But hopefully, after the election, cooler heads will prevail.”
TNT Acquisition
Interestingly, during the earnings call, the company also revealed details of its TNT Express acquisition. According to senior executives, leadership roles at TNT Express have been decided and till now the shipping giant expects to spend $100 million in acquisition expenses as well as an additional $200 million in integration costs in 2017. The acquisition could start contributing to FedEx profits by its fiscal 2018.
In addition, the executives at FedEx also mentioned that the company’s technology platform has already been developed to integrate customers and products from TNT.
According to a poll compiled by Bloomberg, of the 12 analysts that cover the stock, seven have an Outperform rating on the company while five have a Market Perform rating on the shipping giant. During the 52-week period, the company’s shares moved in the $119.71 - 185.19 range and year-to-date, the stock has gained 9.9% at a time when the S&P 500 has gained 1.23% only.
By: Bidness Etc Staff.
Photo: World Airline News.
Review: Emerging Market Formulations &
Research Unit, FLAGSHIP RECORDS.
For The #FacebookTeam