Remember the narrative that the plunge in gas prices is supposed to lead to a surge in corporate profitability if only for those companies for which energy is a cost (not a top-line item like in the decimated energy sector?). Moments ago logistics and trade bellwether came out with numbers that roundly refuted this, after it missed not only on the top line, with revenues of $11.94 billion on expectations of $11.98 billion, but a wide EPS miss, printing $2.14, well below the $2.25 expected and one which the company admitted includes the benefit of $0.16 in EPS from stock repurchases.
This is what the company [2]had to say about its surprising across the board miss:
Operating income and margin increased primarily due to higher volumes and base yields in all three transportation segments. Results in the second quarter also included benefits from the company’s profit improvement programs, lower pension expense and a slightly positive net impact from fuel. These benefits were partially offset by higher aircraft maintenance expense due to the timing of aircraft maintenance events.
Revenue increased due to higher U.S. domestic package volume and international export package base revenue, partially offset by lower fuel surcharges and exchange rates. U.S. domestic package volume grew by 7%, including a 10% increase in U.S. overnight box. U.S. domestic revenue per package declined 2% due to decreased fuel surcharges and lower weight.
FedEx International Economy® volume grew 5%, while FedEx International Priority® volume increased 1%. International export revenue per package was flat, as higher rates were offset by unfavorable currency exchange and lower fuel surcharges.
But with gas prices seemingly sticky at these new low, low levels surely FedEx would at least boost its guidance as a result of lower costs, right? Wrong:
The company reaffirms its fiscal 2015 earnings forecast of $8.50 to $9.00 per diluted share. The outlook assumes continued moderate economic growth and a modest net benefit from fuel. The capital spending forecast for fiscal 2015 remains $4.2 billion.
And while we commend FedEx on posting revenue increases across its four key segments, including Express, Ground, Freight and Services, what was omitted is how FDX got there. A few things to note:
- Express Package Yield, aka Revenue per Package: down 2%
- Freight total average daily pounds: down 2%
- Revenue per US freight pound: down 2%
- Fedex Ground operating margin down from 15.4% to 15.2% despite a 25% drop in fuel operating expenses.
And so on. Judging by the plunge in the stock price, the market is starting to see through the "narrative"
