FedEx Misses Q2 Top And Bottom Line, Pushes Futures Lower

Tyler Durden's picture

After reporting Q2 results that missed substantially on both the top and the bottom line, FedEx is now down over 3%, and is pushing the broader futures lower. The company which was expected to make $9.77 billion in revenue and $1.32 in EPS, made only $9.63 billion and $1.16 in adjusted EPS. And just like every other institution in the US, the firm hopes to make up for its current loss in the future: FedEx actually boosted its adjusted year end EPS projections from $4.80 to $5.25 to $5.00 to $5.30, on consensus of $5.20. Yet while everyone is happy for the company's optimism, having such a substantially subpar quarter at a time when the firm should have been benefiting materially from a restocking and/or liquidating economy and an expected "surge" in logistical expenditures, will make quite a few people scratch their heads. The only question is whether, just like Cisco and Best Buy previously, this surprising miss will be attributed to company specific factors, or the sell-side analysts finally realize there are systemic factors which are actually impacting companies broadly in a downward fashion.

From the press release:

Second Quarter Results

FedEx Corp. reported the following consolidated results for the second
quarter:

  • Revenue of $9.63 billion, up 12% from $8.60 billion the previous year
  • Operating income of $469 million, down 18% from $571 million last year
  • Operating margin of 4.9%, down from 6.6% the previous year
  • Net income of $283 million, down 18% from $345 million a year ago

While shipments and yields grew in all transportation segments, earnings
were reduced by costs related to the January 30, 2011 combination of
FedEx Freight and FedEx National LTL operations, including severance
costs associated with personnel reductions and non-cash asset impairment
charges. Earnings were also reduced by a reserve for a legal matter at
FedEx Express. The reinstatement of certain employee compensation
programs, and higher pension and aircraft maintenance expenses, also
impacted earnings.

Outlook

FedEx projects earnings to be $0.95 to $1.15 per diluted share in the
third quarter and $5.00 to $5.30 per diluted share for fiscal 2011, up
from the company’s previous estimate of $4.80 to $5.25 per diluted
share. This guidance excludes any FedEx Freight combination costs and
the second quarter legal reserve, and also assumes stable fuel prices
and continued moderate growth in the global economy. Including costs
from the FedEx Freight combination and the legal reserve, earnings are
expected to be $0.78 to $1.04 per diluted share for the third quarter
and $4.59 to $4.95 per diluted share for fiscal 2011. The company
reported earnings of $0.76 per diluted share in last year’s third
quarter. The capital spending forecast for fiscal 2011 remains $3.5
billion.

“Our operating performance in the quarter was impacted by strong
compensation and benefits headwinds as we reinstated programs curtailed
during the recession,” said Alan B. Graf, Jr., FedEx Corp. executive
vice president and chief financial officer. “During the quarter, we also
realized more normalized growth in FedEx International Priority®
shipments and higher fuel prices than our earnings guidance had assumed.
Yield improvement and cost management remain our focus. We expect
margins to improve in the second half of fiscal 2011 and in fiscal 2012,
as we continue to benefit from solid global demand for our
differentiated services and as certain cost headwinds subside next
fiscal year.”