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Category: Stock Market and FedEx Corporation
Date: 22 September 2019 Stock Price: $148.78 We take a look at the 1st quarter earnings release of their 2020 fiscal year of FedEx Corporation one of the world's leading logistics services companies with revenues of almost $70 billion in their 2019 fiscal year.
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About FedEx Corporation
FedEx has grown tremendously since its first night of operations in 1973. Now FedEx serves more than 220 countries and territories and continues to offer new products and services around the globe. FedEx Corp. (NYSE: FDX) provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenues of $70 billion, the company offers integrated business solutions through operating companies competing collectively and managed collaboratively, under the respected FedEx brand. Consistently ranked among the world's most admired and trusted employers, FedEx inspires its more than 450,000 team members to remain focused on safety, the highest ethical and professional standards and the needs of their customers and communities.
The image below shows the revenues of FedEx's various divisions to their 2019 fiscal year.
The image below shows the revenues of FedEx's various divisions to their 2019 fiscal year.
Overview FedEx's latest earnings report
The numbers we are interested in (for the quarter):
- Revenue: $17.048 billion (down from $17.052 billion from the same quarter of the previous year)
- Revenue decreased by -0.023% over the last 12 months
- Net earnings: $745 million (down from $835 million for the same quarter of the previous year)
- Diluted income per share: $2.84 (down from $3.10 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 262 million
- Cash and cash equivalents: $2.389 billion
- Cash and cash equivalents per share: $9.11
- Cash and cash equivalents makes up 6.1% of FedEx's market capital
- Cash and cash equivalents makes up 3.49% of FedEx's total assets
- Accounts receivable: $9.312 billion
- Accounts receivable makes up 13.6% of FedEx's total assets
- Stockholders equity of FedEx: $18.166 billion
- Stockholders equity per share: $69.34
- FedEx is trading at 2.13 times its stockholders equity per share. It is trading within the expected range as most firms tend to trade at levels between 2 and 4 times its stated stockholders equity per share.
- Cash generated from operations: $745 million
- Cash generated from operations per share: $2.84
- Cash generated from operations per share: $2.84
FedEx's management commentary on the results and earnings guidance
MEMPHIS, Tenn., September 17, 2019 ... FedEx Corp. today reported the following consolidated results for the first quarter ended August 31
“Our performance continues to be negatively impacted by a weakening global macro environment driven by increasing trade tensions and policy uncertainty,” said Frederick W. Smith, FedEx Corp. chairman and chief executive officer. “Despite these challenges, we are positioning FedEx to leverage future growth opportunities as we continue the integration of TNT Express, enhance FedEx Ground residential delivery capabilities and modernize the FedEx Express air fleet and hub operations.”
Operating results declined primarily due to weakening global economic conditions, increased costs to expand service offerings and continued mix shift to lower-yielding services. The impact of one fewer operating day and the loss of business from a large customer also negatively impacted results. These factors were partially offset by lower variable incentive compensation expenses, revenue growth at FedEx Ground and increased yields at FedEx Freight.
2020 Rate Increases
As previously announced, effective January 6, 2020, FedEx Express, FedEx Ground and FedEx Home Delivery shipping rates will increase by an average of 4.9%, while FedEx Freight shipping rates will increase by an average of 5.9%. Details related to these and additional changes to rates and surcharges are available at fedex.com/rates2020.
Outlook
FedEx is unable to forecast the fiscal 2020 year-end mark-to-market (MTM) retirement plan accounting adjustment. As a result, the company is unable to provide a fiscal 2020 earnings per share or effective tax rate (ETR) outlook on a GAAP basis. FedEx is lowering its fiscal 2020 earnings forecast as the company’s revenue outlook has been reduced due to increased trade tensions and additional weakening of global economic conditions since the company’s initial fiscal 2020 forecast in June.
The company’s revised outlook also reflects increased FedEx Ground costs and August’s loss of FedEx Ground business from a large customer. In addition, the FedEx ETR is now expected to be 24% to 26% before the year-end MTM retirement plan accounting adjustment, due to lower-than-expected earnings in certain non-U.S. jurisdictions.
FedEx now forecasts earnings of $10.00 to $12.00 per diluted share before the year-end MTM retirement plan accounting adjustment, and earnings of $11.00 to $13.00 per diluted share before the year-end MTM retirement plan accounting adjustment and excluding TNT Express integration expenses. The capital spending forecast remains $5.9 billion.
“FedEx is implementing additional cost-reduction initiatives to mitigate the effects of macroeconomic uncertainty, including post-peak reductions to the global FedEx Express air network to better match capacity with demand,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “However, we are continuing to make strategic investments to improve our capabilities and efficiency, which we expect will drive long-term increases in earnings, margins, cash flows and returns.” These forecasts assume moderate U.S. economic growth, the company’s current fuel price expectations, no further weakening in international economic conditions from the company’s current forecast and no additional adverse developments in international trade policies and relations. FedEx’s ETR and earnings per share outlooks are based on the company’s current interpretations of the Tax Cuts and Jobs Act (TCJA) and related regulations and guidance, and are subject to change based on future guidance, as well as FedEx’s ability to defend its interpretations. These forecasts do not include potential costs associated with capacity reductions.
“Our performance continues to be negatively impacted by a weakening global macro environment driven by increasing trade tensions and policy uncertainty,” said Frederick W. Smith, FedEx Corp. chairman and chief executive officer. “Despite these challenges, we are positioning FedEx to leverage future growth opportunities as we continue the integration of TNT Express, enhance FedEx Ground residential delivery capabilities and modernize the FedEx Express air fleet and hub operations.”
Operating results declined primarily due to weakening global economic conditions, increased costs to expand service offerings and continued mix shift to lower-yielding services. The impact of one fewer operating day and the loss of business from a large customer also negatively impacted results. These factors were partially offset by lower variable incentive compensation expenses, revenue growth at FedEx Ground and increased yields at FedEx Freight.
2020 Rate Increases
As previously announced, effective January 6, 2020, FedEx Express, FedEx Ground and FedEx Home Delivery shipping rates will increase by an average of 4.9%, while FedEx Freight shipping rates will increase by an average of 5.9%. Details related to these and additional changes to rates and surcharges are available at fedex.com/rates2020.
Outlook
FedEx is unable to forecast the fiscal 2020 year-end mark-to-market (MTM) retirement plan accounting adjustment. As a result, the company is unable to provide a fiscal 2020 earnings per share or effective tax rate (ETR) outlook on a GAAP basis. FedEx is lowering its fiscal 2020 earnings forecast as the company’s revenue outlook has been reduced due to increased trade tensions and additional weakening of global economic conditions since the company’s initial fiscal 2020 forecast in June.
The company’s revised outlook also reflects increased FedEx Ground costs and August’s loss of FedEx Ground business from a large customer. In addition, the FedEx ETR is now expected to be 24% to 26% before the year-end MTM retirement plan accounting adjustment, due to lower-than-expected earnings in certain non-U.S. jurisdictions.
FedEx now forecasts earnings of $10.00 to $12.00 per diluted share before the year-end MTM retirement plan accounting adjustment, and earnings of $11.00 to $13.00 per diluted share before the year-end MTM retirement plan accounting adjustment and excluding TNT Express integration expenses. The capital spending forecast remains $5.9 billion.
“FedEx is implementing additional cost-reduction initiatives to mitigate the effects of macroeconomic uncertainty, including post-peak reductions to the global FedEx Express air network to better match capacity with demand,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “However, we are continuing to make strategic investments to improve our capabilities and efficiency, which we expect will drive long-term increases in earnings, margins, cash flows and returns.” These forecasts assume moderate U.S. economic growth, the company’s current fuel price expectations, no further weakening in international economic conditions from the company’s current forecast and no additional adverse developments in international trade policies and relations. FedEx’s ETR and earnings per share outlooks are based on the company’s current interpretations of the Tax Cuts and Jobs Act (TCJA) and related regulations and guidance, and are subject to change based on future guidance, as well as FedEx’s ability to defend its interpretations. These forecasts do not include potential costs associated with capacity reductions.
FedEx (NYSE: FDX) stock price history
The image below, obtained from Google, shows the stock price history of FedEx (NYSE: FDX) since its listing. And it hasn't been a good time for FedEx stockholders. 5 years ago the stock of FedEx was trading at $159 a stock, and its currently it's trading at $148.78 Thats s return of -6.4% offered over the last 5 years. The stock is also trading at a lot closer to its 52 week low of $147.82 than it is to its 52 week high of $250.95 which to us is a clear indication that the short term sentiment and momentum of the stock is overwhelmingly negative.
FedEx (NYSE: FDX) latest stock valuation
So based on the earnings report of FedEx (NYSE:FDX) and the latest earnings guidance provided what do we value FedEx's stock at? Based on their latest earnings and the outlook provided by the group our target (full value) price for FedEx at $159 a stock. We therefore believe the stock of FedEx is undervalued
We usually suggest long term fundamental and value investors look to enter the stock at least 10% below our target price, which in this case is $159 Therefore we believe the a good entry point into the stock is below $143. So should the stock drop from its current levels of $148 to below $143 we believe it will be a good buying opportunity to get into one of the world's leading logistics companies.
We usually suggest long term fundamental and value investors look to enter the stock at least 10% below our target price, which in this case is $159 Therefore we believe the a good entry point into the stock is below $143. So should the stock drop from its current levels of $148 to below $143 we believe it will be a good buying opportunity to get into one of the world's leading logistics companies.