FedEx gains on 'better-than-feared' quarter, Goldman flags conservative guidance

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By Senad Karaahmetovic

Shares of FedEx (NYSE:FDX) are up nearly 5% in pre-open Wednesday after the company delivered better-than-feared earnings and guidance.

FedEx posted adjusted EPS of $3.18 on revenue of $22.8 billion, which compares to the average analyst consensus for earnings of $2.81 per share on revenue of $23.71B. FedEx blamed demand weakness, particularly at FedEx Express, for lower-than-expected top-line figures.

Overall, revenue decreased by almost 3% year-over-year (YoY) with FedEx Express revenue coming in at $10.86B, missing the consensus by nearly half a billion.

"The FedEx team moved with urgency to make rapid progress on our ongoing transformation while navigating a weaker demand environment," stated Raj Subramaniam, FedEx Corp. president and chief executive officer.

"Our earnings exceeded our expectations in the second quarter driven by the execution and acceleration of our aggressive cost reduction plans. At the same time, we continue to focus on delivering excellent service for our customers."

For FY2023, FedEx sees adjusted EPS between $13 and $14, below the consensus of $14.14. The company cut its CapEx forecast to $5.9B from the prior $6.3B.

"As we look to the second half of our fiscal year, we are accelerating our progress on cost actions, helping to offset continued global volume softness," said Michael Lenz, FedEx executive vice president and chief financial officer.

Along these lines, FedEx expects to generate total FY2023 cost savings of about $3.7B.

Goldman Sachs analysts said FedEx delivered "not as bad as estimated by Street" earnings, highlighting an EPS beat.

"While implied guidance suggest that FY2H EPS could come in below our forecast as well as the Street's – we think another EPS "clearing" event was widely anticipated by the market, and the $13-$14 per share EPS range (we go from $14.20 per share to $13.95) essentially equates to about an $0.80 per share estimate cut at the midpoint (relative to consensus), or about 6%. Given the shares are already trading at just 10.5x NTM EPS – we think this magnitude could be not as bad as potentially feared by the market," the analysts further said in a note.

Morgan Stanley analysts are more cautious about the FDX stock as they believe guidance "implies more challenges ahead."

"As commendable as the cost actions are, the real question investors will be asking is what these actions imply about the underlying revenue base… Even if FDX were to deliver on all of its LT cost targets (which could be a great achievement) normalized EPS is likely to be in the LDD range and possibly lower (closer to $10) if one considers competitive risk and execution risk," the analysts wrote.