FedEx Delivers A Buying Opportunity To Investors

FedEx Pulls Back On Strong Results And Outlook

Both FedEx  NYSE: FDX and Nike reported strong earnings this morning. The difference is that where Nike’s strength was not expected and drove shares higher, FedEx's strength was more or less expected by the market if not predicted by the consensus estimate and failed to spur bullish sentiment. The takeaway for us, today, is that FedEx trade at a discount to competitor UPS, it's growing, beat the consensus estimates, and guided fiscal 2022 higher. We view this pullback as a buying opportunity. 

The only negative within the report and perhaps the real reason why shares are falling is that the company is planning to spend $7.2 billion in CapEx this year, a wee bit more than analysts were expecting. The takeaway here is that spending is going to focus on e-commerce, operational performance, and efficiency, three aspects that are already driving this company's record results.  So, while spending may cut into earnings potential now it will lead to greater profitability later.

FedEx Grows On Volume And Pricing

FedEx reported $22.60 billion in net consolidated revenue for the quarter. This is up 29.9% from last year and beat the consensus by 490 basis points. The gains were driven by an increase in volume and pricing that were compounded but internal optimization and asset utilization. 

On a segment basis, FedEx Express saw its operating income more than double from the past year driven by strength in international export and domestic package services. The operating margin in this segment increased by 260 basis points. FedEx Ground reported record earnings for the quarter and revenue growth of 27%. The gain here was driven by a 14% increase in revenue per package that helped drive a 310 basis point improvement in the operating margin. FedEx Freight also reported record earnings and operating margin on a 30% increase in daily shipments augmented by a 6% increase in revenue per shipment.

Moving down to the earnings, the company's operating margin improved 350 basis points over the past year to 8.7% to drive growth in both GAAP and non-GAAP earnings. GAAP EPS of $6.88 beat by $1.94 while the adjusted EPS of $5.01 beat by a penny. Looking forward, the company is expecting revenue and earning strength to continue in fiscal 2022 and have guided higher because of it. The company is expecting $20.50 to $21.50 compared to the $20.48 expected by the analyst despite the higher CAPEX forecast. The caveat is that the EPS Outlook may not be comparable to consensus due to the impact of mark-to-market retirement plan accounting adjustments and expenses and costs related to business realignment. 

FedEx Might Deliver Another Dividend Increase

FedEx is not a high-yielding stock but it does pay a safe dividend. At present levels, the stock is yielding about 1% and there is a positive bias in regards to the outlook for future increases. The company increased the dividend for the first time in several years this past year indicating a willingness to increase the payout while the 14% payout ratio and earnings outlook both suggest the ability.

The Technical Outlook: FedEx Pulls Back To Support 

Shares of FedEx are down about 4% in premarket trading and may fall further. The caveat is that price action is now well within a zone that could be considered strong support. In our view, the $280 level is key support and needs to be watched closely. Confirmation of support at or above this level will be bullish while a break below it would be bearish. If price action falls below this level It may move down to $260 but we don't see this happening. More likely, the price action will find support at or near $280 and then move sideways before eventually resuming the uptrend later this year.