FedEx Results Have Street Squinting For Light at End of Tunnel
FedEx Results Have Street Squinting For Light at End of Tunnel
(Bloomberg) -- FedEx shares sank in pre-market trading on Wednesday as the parcel company lowered its profit forecast for the year and reported quarterly results below expectations, prompting Wall Street analysts to wonder if the situation can worsen.
While Bernstein said the results may have not yet reached a “floor”, Credit Suisse said it was “hard to conceive of it getting worse from here.” Analysts seemed more in agreement on another issue, noting that the disappointing results from FedEx cannot be fully explained by industry troubles and macro-economic slowness.
Shares of the company were down about 7.6% in early trading, while peer UPS was down 1.8%.
Here’s a round up of analysts’ comments after the results and call.
Deutsche Bank, Amit Mehrotra
“FedEx reported results that we can only characterize as breathtakingly bad.”
“If it was not for an effective tax rate of just 6% (vs expectations in the mid-20% level), EPS would have been $2.01.”
“To be fair the market was braced for a weak result, but we’d characterize these numbers as weaker than even the most bearish estimates,” and so would expect shares to trade notably down.
Rates hold.
Bernstein, David Vernon
“The floor isn’t in yet - but it’s more company than market.”
“The bad macro and the shift of holiday timing could help to partially explain but not excuse results, as this should have been known by the company. ”
“The company did acknowledge that costs to stand-up the Ground network for 7-day were higher than expected and expressed confidence that margins would recover, but it is hard to share that confidence as more low yielding Smartpost volume is injected into the network.”
Morgan Stanley, Ravi Shanker
“While international trade and tariff uncertainty, combined with weak Industrial Production in the U.S., certainly do not help, we note that FedEx’s own macro assumptions are largely unchanged from a quarter ago, which makes it hard to pin the about 15% effective FY guidance reduction on further macro deterioration.”
“The structural headwinds on eCommerce are starting to blow even harder.”
“Looking ahead to 2020, we believe UPS will likely see the same 7-day headwinds starting in January that FedEx is seeing today and we think the risk of an Amazon in-sourcing loss remains very high, unlike FedEx.”
Rates equal-weight, PT $109 from $111.
Susquehanna, Bascome Majors
“Following FedEx’s fifth straight downside guide and some signs of stabilization in broader global air cargo demand, non-GAAP earnings could finally be finding a floor.”
Rates neutral, PT $145 from $154.
Citi, Christian Wetherbee
“FedEx is in the midst of severe headwinds from macro/trade issues, its adjusting strategy to adapt to e-commerce, and the TNT integration.”
The issues “will likely be present through fiscal 2020, and fiscal second-quarter results, while worse than expected, are consistent with the impact of these headwinds. As a result, our outlook remains similar to post fiscal first quarter, results are bad and fiscal third quarter could be worse.”
“You don’t need to be in a hurry, but we feel we are closer to a cyclical bottom and there is likely more upside than downside absent a recession.”
Rates buy, PT $180
Credit Suisse, Allison Landry
“At this risk of sounding like a broken record calling a bottom for FedEx earnings, at this point it is truly a challenge for us to think that things get materially worse from here.”
“With many of the major problematic cost headwinds being largely absorbed in FY 2020, there is reasonable line of sight toward margin improvement in FY 2021.”
Rates outperform
Stephens, Jack Atkins
“With a stocking full of coal investors ask, is this finally the bottom?”
“It is hard for us to downgrade the stock today given the recent positive developments around trade relations between the U.S. and China as well as increased confidence in an orderly BREXIT.”
“See a number of self-help items coming in FY 2021 which should help drive a needed improvement in profitability.”
Rates overweight, PT $180 from $192.
Raymond James, Patrick Tyler Brown
“Management stressed that capex will ‘drop significantly’ both on an absolute basis and as a percent of revenue — which, coupled with the prospects of structural improvements & TNT synergies upon full integration could combine to re-accelerate free cash flow in out-years — the proverbial ‘light at the end of the tunnel.”’
“While FY 2020 is proving little more than a throw away year, we do believe the investments being made across the portfolio position FedEx to reap future operational cost benefits, synergies, and growth.”
Rates outperform, PT $167 from $175.
To contact the reporter on this story: Esha Dey in New York at edey@bloomberg.net
To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Steven Fromm, Tatiana Darie
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