Citi analysts said that FedEx is making progress on its long-term margin improvement objective; however, freight challenges are likely to limit the stock's near-term upside.
- FedEx and its peer UPS are feeling the impact of the Trump administration's dynamic tariff policy, which has affected demand in some areas.
- The company reported revenue of $23.5 billion for the quarter, while analysts expected $22.8 billion.
- FedEx noted that the grounding of its MD-11 fleet added $25 million in costs in November alone.
FedEx (FDX) garnered praise from Wall Street after its second-quarter earnings topped expectations, but the grounding of its MD-11 cargo aircraft fleet and the freight market outlook also prompted caution.
The company reported revenue of $23.5 billion for the quarter, compared to analysts’ expectations of $22.8 billion. Its adjusted earnings per share came in at $4.82, above an estimated $4.11.
The firm said that its Express operations results improved in the quarter on higher U.S. domestic and International Priority package yields, continued cost savings, lower business optimization costs, and increased U.S. domestic package volume. The stock, however, was down 2.7% premarket.
What Are Analysts Saying?
Citi analysts noted that FedEx is making progress on its long-term margin improvement objective; however, freight challenges are likely to limit the stock's near-term upside, according to TheFly.
Jefferies analysts were also “surprised" by the strength of the company's fiscal second-quarter earnings beat. The company earlier raised the lower end of its adjusted earnings forecast to $17.80 per share from $17.20, and kept the upper end unchanged at $19.
FedEx and its peer UPS are feeling the impact of the Trump administration's dynamic tariff policy, which has affected demand in some areas. They have also taken a hit as the Trump administration has moved to end the de minimis exemption. This trade policy allowed low-value imported goods valued below $800 to enter the United States without companies having to pay customs duties or taxes. The company also said that it expects to take a $1 billion hit due to global trade uncertainty.
FedEx said that during the third quarter, it had to grapple with several external issues, including nationwide air traffic constraints, weakness in the industrial economy, and the impact of global trade policy changes.
MD-11 Groundings Raise Costs
UPS and FedEx proactively grounded their entire fleets of MD-11 aircraft after a UPS-operated plane crashed in Kentucky, claiming 14 lives, including three UPS crew members. FedEx had 34 MD-11s in its fleet of 700 aircraft.
The company said it incurred $25 million in additional costs in November alone due to the grounding of the MD-11. "It's an expensive time of the year to have outsourced lift," said FedEx CFO John Dietrich. While FedEx expects MD-11 aircraft to return to its fleet, JPMorgan analysts noted that the MD-11 impact is much more pronounced in the fiscal third quarter, as the Freight business continues to lose fundamental momentum.
What Are Stocktwits Users Saying?
Retail sentiment on Stocktwits about FedEx was still in the ‘extremely bullish’ territory at the time of writing.
FedEx stock has gained close to 2% this year, while UPS is down 19.6%.
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