FedEx Corporation (NYSE:FDX) will release its quarterly report on Wednesday, and investors have recently been extremely upbeat about the stock’s prospects, bidding shares to levels not seen since 2007. With so much optimism, it’ll be important for FedEx Corporation (NYSE:FDX) earnings hold up well, both for its stock’s sake and as a bellwether of the entire global economy.
Stats on FedEx
| Analyst EPS Estimate | $1.51 |
| Change From Year-Ago EPS | 4.1% |
| Revenue Estimate | $10.97 billion |
| Change From Year-Ago Revenue | 1.7% |
| Earnings Beats in Past 4 Quarters | 2 |
Source: Yahoo! Finance.
How high will FedEx earnings fly this quarter?
Analysts have marked down their view on FedEx Corporation (NYSE:FDX) earnings substantially in recent months, cutting $0.08 per share from their August-quarter estimates and about $0.40 per share from their fiscal 2014 and 2015 full-year projections. Despite those cuts, the stock has managed to climb 10% since mid-June.
FedEx’s May-quarter report shows some of the challenges that the company has gone through lately. Even though it managed to produce impressive earnings after adjusting for the costs of restructuring its business and for charges related to its aircraft fleet, it continues to see pressure ahead, and shareholders took the pessimistic view in bidding the stock downward.
But in early July, FedEx Corporation (NYSE:FDX) stock recovered its lost ground on speculation that hedge fund maven Bill Ackman might take a stake in the delivery company. Those rumors came to naught, though, as the target Ackman had described turned out to be Air Products & Chemicals rather than FedEx. But the shares held onto much of their gains regardless.
FedEx does face weakening demand for its air cargo services, as customers shift more of their business to ground shipping services. Even internationally, customers have been willing to accept slower shipping methods. In response, FedEx Corporation (NYSE:FDX) is consolidating its priority-shipping capacity to cut costs and better reflect customers’ wishes. That has the arguably unintended benefit of making the company a better competitor against United Parcel Service, Inc. (NYSE:UPS), which has historically had an edge over FedEx in ground transportation. When United Parcel Service, Inc. (NYSE:UPS) announced its own negative earnings report in July, FedEx shares jumped in response. Moreover, the $1.5 billion in expected cost savings could help boost margins and produce even greater earnings growth in the years to come.
One big question for FedEx is what will happen if a national online shopping sales tax takes effect. FedEx and United Parcel Service, Inc. (NYSE:UPS) have both benefited from Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY) selling goods that in most states aren’t subject to sales tax, as customers have been willing to pay what often amounts to lower shipping costs than the sales tax they save. Amazon.com, Inc. (NASDAQ:AMZN) has actually favored an Internet sales tax, but eBay Inc (NASDAQ:EBAY) has argued the move hurts its small-business customers. FedEx could end up the loser if higher prices drive more people to bricks-and-mortar retailers once the Internet sales-tax advantage goes away.
In the FedEx earnings report, watch to see how well the company’s restructuring efforts are going. If it can get its aircraft overcapacity issue taken care of quickly, then FedEx could see earnings growth start to accelerate once more.
The article Will FedEx Earnings Deliver Faster Growth? originally appeared on Fool.com and is written by Dan Caplinger.
Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends FedEx and United Parcel Service. It recommends and owns shares of Amazon.com and eBay.
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