Moments ago FedEx reported first quarter earnings ended August 31, which blew expectations out of the water, because instead of the consensus EPS print of $1.96, EPS reported a whopping $2.10 for Q1, a massive 14 cent beat, and up 37% from last year's $1.53 reported EPS.
Wow: it must be a great operating environment, with logistics and global trade humming for FDX to beat so impressively, right? Wrong.
Here's how it happened, from the company's own press release:
During the quarter, the company acquired 5.3 million shares of FedEx common stock. As of August 31, 2014, no shares remained under the existing share repurchase authorizations. Share repurchases benefited earnings in the quarter by $0.15 per diluted share.
Oh well, time for another stock repurchase authorization: this time bigger, better and even more uncut. Charted:
In other words, had it not been for the stock buyback, FedEx would have missed EPS by 1 cent despite also beating revenues handily, with Q1 sales $11.7 billion on expectations of $11.47 billion.
Which brings us to why this troubling disconnect took place: rising costs... and FedEx's prompt response:
As previously announced, FedEx Express, FedEx Ground and FedEx Freight will increase shipping rates effective January 5, 2015.
FedEx Express will increase shipping rates by an average of 4.9% for U.S. domestic, U.S. export and U.S. import services.
FedEx Ground and FedEx Home Delivery will increase shipping rates by an average of 4.9%. In addition, as announced in May, FedEx Ground will also begin applying dimensional weight pricing to all shipments.
FedEx Freight will increase shipping rates by an average of 4.9%. This rate change applies to eligible FedEx Freight shipments within the U.S. (including Alaska, Hawaii, Puerto Rico and the U.S. Virgin Islands), between the contiguous U.S. and Canada, within Canada, between the contiguous U.S. and Mexico, and within Mexico
Apparently they didn't get the "deflation" memo.
Finally, how was CapEx in the quarter? Answer: $720 million, which is almost as much as the $791 million in stock repurchases in the quarter.